SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COPLEY PHARMACEUTICAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2514637
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
25 JOHN ROAD
CANTON, MASSACHUSETTS 02021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
COMMISSION FILE NUMBER: 0-20126
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781)821-6111
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
AGGREGATE MARKET VALUE, AS OF MARCH 16, 1998, OF COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT: $54,239,500.00, BASED ON THE LAST REPORTED
SALE PRICE ON THE NASDAQ NATIONAL MARKET.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING ON MARCH 16, 1998: 19,153,518
DOCUMENTS INCORPORATED BY REFERENCE
THE REGISTRANT INTENDS TO FILE A DEFINITIVE PROXY STATEMENT PURSUANT TO
REGULATION 14A WITHIN 120 DAYS OF THE YEAR ENDED DECEMBER 31, 1997. PORTIONS OF
SUCH PROXY STATEMENT ARE INCORPORATED BY REFERENCE IN PART III OF THIS REPORT.
<PAGE>
PART 1
ITEM 1: BUSINESS
Overview
Copley Pharmaceutical, Inc. ("Copley" or the "Company"), established in 1972,
develops, manufactures, markets and distributes a broad range of multi-source
pharmaceutical products. These products include prescription and
over-the-counter ("OTC") drugs and are available in a variety of dosage forms
consisting of tablets, solutions, suspensions, syrups, elixirs, jellies, creams,
ointments and powders. The Company's product categories include, among others,
preparations for neoplasms, endocrine system and metabolic diseases,
anti-infective agents, central nervous system and sense organ drugs, respiratory
system drugs, cardiovascular system drugs, vitamins and nutrients, and skin
preparations. The Company sells its products to prescription and OTC drug
distributors, retail chains, wholesalers, hospitals, health maintenance
organizations ("HMOs"), other managed care entities and government agencies.
Multi-source, or generic, drugs are the chemical and therapeutic
equivalents of brand-name drugs. They are required to meet similar governmental
standards as the brand-name drugs and must receive Food and Drug Administration
("FDA") approval prior to manufacture and sale. Multi-source drugs may be
manufactured and marketed only if relevant patents (and any additional
government-mandated market exclusivity periods) have expired. These drugs are
typically sold under their generic chemical names at prices significantly below
those of their brand-name equivalents.
Forward-looking statements (statements which are not historical facts) in
this report are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements, including statements about product filings and
approvals, raw material supply, net sales, price erosion, gross profit, research
and development expenses, selling, marketing and distribution expenses, general
and administrative expenses, recall related and litigation expenses,
restructuring and other expenses, and interest expense, involve risks and
uncertainties, including the risks and uncertainties detailed below, and actual
results may differ significantly from those in any forward looking statements.
Generic Drug Market
Generic pharmaceutical sales have increased significantly in recent years, due
in part to an increased awareness and acceptance among consumers, physicians and
pharmacists that generic drugs are the therapeutic equivalents of brand-name
drugs. Among the factors contributing to this increased awareness are the
passage of state legislation permitting or encouraging substitution by
pharmacists and the FDA's publication of a list of therapeutic equivalent drugs,
which provides physicians and pharmacists with generic drug alternatives. In
addition, since generic pharmaceutical products are typically sold at prices
significantly below those of their brand-name equivalents, various government
agencies and many private managed care or insurance programs encourage the
prescribing of generic drugs as a cost-savings measure in the purchase of, or
reimbursement for, prescription drugs. The Company believes that these factors,
coupled with the future patent expirations on widely prescribed brand-name
products, will continue to influence the growth in the market for generic drugs.
Product Development Strategy and Products
The Company's product development strategy emphasizes multiple approaches for
developing and marketing new drugs. The Company's principal focus is to obtain
FDA approval to market equivalent formulations of prescription drugs through the
Abbreviated New Drug Application ("ANDA") process. Specifically, the Company
seeks a balance between niche products with limited competition and high-volume
pharmaceutical products. Additional strategies include plans to introduce OTC
drugs once their brand-name equivalents are converted from prescription to OTC
status, to market generic versions of certain drugs now manufactured by Hoechst
Marion Roussel, Inc. ("HMRI"), a subsidiary of Hoechst Aktiengesellschaft, the
Company's indirect 51% fully diluted shareholder, pursuant to the Product
Agreement(1) between Copley and Hoechst Corporation ("HC"), and, to a lesser
extent, manufacture and market products for sale outside the United States.
(1) In connection with HC's acquisition of its majority interest in the Company,
the Company is party to a Product Agreement with HC pursuant to which the
Company is afforded the opportunity to distribute and market the generic version
of products sold by Hoechst-Roussel Pharmaceutical Inc. ("HRPI"), a former
indirect majority owned subsidiary of HC. This Product Agreement has an initial
term of five years, until November 11, 1998, and continues unless terminated by
either party giving one year's notice. On January 1, 1996, HRPI was merged into
HMRI. HMRI has agreed to be bound by the Product Agreement to the extent that
HRPI was bound; that is, the Product Agreement continues to be in effect for
products manufactured by the former HRPI but not for products manufactured by
HMRI prior to the merger with HRPI nor for products developed by HMRI after
January 1, 1996. In furtherance of the Product Agreement, the Company and HMRI
entered into separate contracts relating to specific products as these products
became available for generic distribution. Refer to Note J of the Notes to
Consolidated Financial Statements.
<PAGE>
ANDA-Approved Drugs
The Company's core business remains the development and marketing of generic
prescription drugs. The Company continues to focus on niche products that offer
a significant opportunity for the Company but which may not necessarily attract
larger or numerous competitors, either because the market for such drugs is
relatively small or because the products employ extended release or other
complex delivery systems that are difficult to formulate. The Company also
focuses on certain high-volume pharmaceutical products to respond to customer
demand that suppliers carry a broad array of products.
Prescription to OTC Conversion
The Company believes that a number of drugs will be reclassified from
prescription to OTC over the next several years. The Company also believes the
OTC market will expand as consumers more readily choose self-treatment and as
drug companies and health care payers urge the FDA to accelerate the approval of
OTC products. The Company has experience in this marketplace, having marketed
several OTC products, including miconazole nitrate vaginal cream, the generic
equivalent of Ortho McNeil's Monistat(R)7 and two minoxidil topical solution
products, the off-patent versions of Pharmacia & Upjohn's Rogaine(R). In
addition, the Company believes that private label store brands will continue to
gain market share within the OTC market.
Generic Versions of HMRI Drugs
The Company's Product Agreement with HC affords the Company the opportunity
under specified conditions to distribute and market certain HMRI drug products
which HMRI desires to sell in generic form which have become subject to
multi-source competition or which HMRI decides to pre-launch in generic version
before the relevant patent expires. The Company markets glyburide, the generic
version of HMRI's DiaBeta(R), and micronized glyburide, the therapeutic
equivalent of Pharmacia & Upjohn's Glynase(R) and HMRI's GluBate(R).
Additionally, in July 1997 the Company introduced pentoxifylline, the generic
version of HMRI's Trental(R). The Company does not expect to distribute and
market any additional new products under the Product Agreement.
Non-U.S. Markets
The Company plans to continue to manufacture and market products for sale
outside of the United States through its wholly-owned subsidiary, Copley
Pharmaceutical International, Inc. The Company has entered into certain
collaborative arrangements in China and certain republics of the former Soviet
Union. During the second quarter of 1997, the Company withdrew from and wrote
off its investment in a partnership organized to sell generic drugs in certain
republics of the former Soviet Union but will continue to sell products through
that partnership. In addition, the Company sells a limited number of its
products internationally through distributors. Refer to Note J of the Notes to
Consolidated Financial Statements.
As of March 16, 1998 the Company's products include the following:
<TABLE>
<CAPTION>
Number
of Dosage
Products Strengths Brand Name/Company
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Preparations for Neoplasms, Endocrine System and Metabolic Diseases
glyburide tablets 3 DiaBeta(R)/Hoechst Marion Roussel, Inc.
hydrocortisone enema suspension 1 Cortenema(R)/Solvay
micronized glyburide tablets 2 GluBate(R)/Hoechst Marion Roussel, Inc.
Glynase(R)/Pharmacia & Upjohn
Anti-Infective Agents
amantadine HCl syrup 1 Symmetrel(R)/DuPont Merck
hydroxychloroquine sulfate tablets 1 Plaquenil(R)/Sanofi-Winthrop
mebendazole tablets 1 Vermox(R)/Janssen Research
miconazole nitrate vaginal cream 1 Monistat(R)7/Ortho McNeil
Central Nervous System and Sense Organ Drugs
diclofenac sodium delayed-release tablets 3 Voltaren(R)/Ciba-Geigy
doxepin HCl oral solution 1 Sinequan(R)/Pfizer
ethosuximide syrup 1 Zarontin(R)/Parke-Davis
fluphenazine HCl concentrate oral solution 1 Prolixin(R)/Apothecon
fluphenazine HCl elixir 1 Prolixin(R)/Apothecon
haloperidol oral solution 1 Haldol(R)/McNeil
methazolamide tablets 2 Neptazane(R)/Storz-Lederle
naproxen tablets 3 Naprosyn(R)/Roche
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number
of Dosage
Products Strengths Brand Name/Company
- ------------------------------------------------------------------------------
<S> <C> <C>
Central Nervous System and Sense Organ Drugs
prochlorperazine maleate tablets 2 Compazine(R)/SmithKline Beecham
thioridazine HCl oral solution 1 Mellaril(R)/Sandoz
thiothixene HCl oral solution 1 Navane(R)/Pfizer
valproic acid syrup 1 Depakene(R)/Abbott
Respiratory System Drugs
bromatapp extended release ("ER") tablets 1 Dimetapp Extentabs(R)/Whitehall Robins
clemastine fumarate syrup 1 Tavist(R)/Sandoz
doxylamine succinate tablets 1 Unisom(R)/Pfizer
R-tannate pediatric suspension 1 Rynatan(R)/Wallace
R-tannate tablets 1 Rynatan(R)/Wallace
Vitamins and Nutrients
B-complex vitamins plus tablets 1 Berocca(R)Plus/Roche
fluoride tablets 1 Luride(R)/Colgate
multivitamins with fluoride tablets 2 Poly-Vi-Flor(R)/Mead Johnson
multivitamins with fluoride & iron tablets 2 Poly-Vi-Flor(R)with Iron/Mead Johnson
potassium chloride ER tablets 1 Slow-K(R)/Summit
prenatal plus iron tablets 1 Stuartnatal(R)Plus/Wyeth-Ayerst
prenatal Rx tablets 1 Natalins(R)Rx/Mead Johnson
sodium fluoride drops 1 Luride(R)/Colgate
Cardiovascular System Drugs
captopril tablets 4 Capoten(R)/Bristol-Myers Squibb
diltiazem HCl tablets 4 Cardizem(R)/Hoechst Marion Roussel, Inc.
guanabenz acetate tablets 2 Wytensin(R)/Wyeth-Ayerst
nadolol tablets 3 Corgard(R)/Bristol-Myers Squibb
pentoxifylline tablets 1 Trental(R)/Hoechst Marion Roussel, Inc.
procainamide HCl ER tablets 3 Procan(R)SR/Parke-Davis
quinidine sulfate ER tablets 1 Quinidex Extentabs(R)/Robins
Skin Preparations
clindamycin phosphate topical solution 1 Cleocin-T(R)/Pharmacia & Upjohn
clobetasol propionate cream 1 Temovate(R)/Glaxo-Wellcome
clobetasol propionate ointment 1 Temovate(R)/Glaxo-Wellcome
lidocaine HCl jelly 1 Xylocaine(R)/Astra
minoxidil topical solution 2% for men 1 Rogaine(R)/Pharmacia & Upjohn
minoxidil topical solution 2% for women 1 Rogaine(R)/Pharmacia & Upjohn
silver nitrate solution 1 silver nitrate
Digestive and Genito-Urinary System Drugs
cholestyramine powder 1 Questran(R)/Bristol-Myers Squibb
Oral and Dental Agents
acidulated phosphate fluoride oral rinse 1 Phos-Flur(R)/Colgate
Diagnostic Substances
copper sulfate solution 1 copper sulfate
</TABLE>
Except for Copley and Brompheril, all brand names, trademarks or registered
trademarks appearing in this report are the property of others.
For the year ended December 31, 1997, preparations for neoplasms, endocrine
system and metabolic diseases; anti-infective agents; cardiovascular system
drugs; and central nervous system and sense organ drugs accounted for 35.9%,
20.7%, 12.2% and 10.5% of net sales, respectively. For the year ended December
31, 1996, preparations for neoplasms, endocrine system and metabolic diseases;
anti-infective agents; and central nervous
<PAGE>
system and sense organ drugs accounted for 36.8%, 22.8% and 10.6% of net sales,
respectively. Preparations for neoplasms, endocrine system and metabolic
diseases; anti-infective agents; and respiratory system drugs accounted for
47.0%, 15.5% and 10.6% of net sales, respectively, for the year ended December
31, 1995. No other single therapeutic category accounted for more than 10% of
the Company's net sales during these periods.
Research and Development
For the years ended December 31, 1997, 1996 and 1995, the Company incurred $11.7
million, $13.7 million and $13.3 million of research and development
expenditures, respectively. This level of research and development spending as a
percentage of manufacturing net sales exceeds the generic pharmaceutical
industry average.
The Company's research and development activities consist primarily of
developing new drug products and improving existing products' manufacturing
processes. The development time for new prescription ANDA products, including
formulation, bioequivalence and stability testing and the FDA approval process,
averages from three to five years. The costs associated with establishing and
operating research and development laboratories for analytic chemistry and
formulations, conducting biostudies, complying with FDA procedures, completing
scale-up and process development and hiring, employing and training technical
and scientific staff members have increased in recent years.
Strategic Alternatives
On October 31, 1996, the Company announced that it had retained Oppenheimer &
Co. to evaluate strategic alternatives for the Company, including possible
business alliances.
Expiration of Governance Agreement
In connection with HC's acquisition of a majority of the Company's outstanding
stock in 1993, the Company and HC entered into a Corporate Governance and
Standstill Agreement (as amended, the "Governance Agreement"). The purpose of
the Governance Agreement was to provide limited protections to the minority
shareholders by restricting certain actions HC would otherwise be legally able
to take as the holder of a majority of the Company's stock. On October 8, 1998,
the Governance Agreement will expire by its terms, with the exception of certain
limited protections that will continue in force. Refer to "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for a
more detailed discussion.
Marketing and Distribution
The Company markets its products to approximately 250 customers. For the year
ended December 31, 1997, 42.6% of net sales were to drug wholesalers, 35.3% to
retail chains, 21.0% to multi-source distributors of the Company's prescription
drugs and the remaining 1.1% to government agencies, hospitals and HMOs.
Included in wholesaler and multi-source distributor net sales are indirect
contract sales negotiated by the Company with non-warehousing retail chains,
retail buying groups, hospitals, and managed care entities. The Company sells
its drug products under its own "Copley" label and through private label
arrangements with multi-source distributors. For the year ended December 31,
1997, one customer accounted for 13.9% of total net sales and no other single
customer accounted for more than 10% of the Company's net sales. The Company
does not believe that the loss of any one customer would have a material adverse
effect on the Company's business or operations.
Customer service activities are an integral part of the Company's
marketing operations. The Company uses its best efforts to maintain adequate
inventories, make timely delivery of its products and provide technical and
other service support to its customers.
Backlog Orders
The net dollar amount of backlog orders for the Company's products as of
December 31, 1997 was approximately $1.8 million as compared with $1.0 million
as of December 31, 1996. The Company's backlog orders consist of those orders
received by the Company but which the Company had not shipped by the later of
two business days following receipt of the order or the customers' requested due
date. Although these orders are subject to cancellation without penalty,
management expects to fill substantially all of such orders within the current
fiscal year.
Raw Materials
The active pharmaceutical ingredient (API) raw materials essential to the
Company's business are purchased primarily from U.S. distributors of bulk
pharmaceutical chemicals manufactured abroad. Arrangements with foreign raw
material suppliers are subject to risk, including the applicability of FDA,
customs and other United States or foreign governmental statutes, regulations
and clearances, the imposition of export and import duties, political and social
instability, possible currency fluctuations and restrictions on the transfer of
funds. In addition, the European Community regulatory action to extend the
exclusivity period of patented pharmaceuticals, which is dependent upon
<PAGE>
implementation by the member countries, may make it increasingly difficult to
obtain certain raw materials prior to the expiration of the applicable European
patents.
Since the FDA's drug application process requires specification of raw
material suppliers, if raw materials from a specified supplier were to become
unavailable, the Company would be required to file a supplement to its product
filing and revalidate the manufacturing process using the new supplier's
materials. This could cause a delay of several months in the manufacture of the
drug involved and the consequent loss of potential revenue and market share. The
Company attempts to specify two raw material suppliers in all drug applications
when a second source has been identified.
Personnel
As of February 28, 1998, the Company had 404 full-time and 5 part-time
employees. Of these, 182 were involved in production, 67 in research and
development, 66 in quality affairs, 40 in facilities maintenance and
engineering, 36 in administration and 18 in sales and marketing.
Competition
The Company competes with the original manufacturers of brand-name drugs that
continue to be produced after patent expirations, brand-name pharmaceutical
companies that manufacture generic drugs, other generic manufacturers and
manufacturers of therapeutically similar drugs that may compete with the
Company's drugs. The principal competitive factors in the generic pharmaceutical
industry are the ability to introduce equivalents of brand-name drugs promptly
after patent expiration, continuity of supply, price, product quality, breadth
of product line, customer service and reputation.
A number of the Company's competitors, including generic divisions and
subsidiaries of large brand-name pharmaceutical companies, have substantially
greater resources to devote to product development, manufacturing and marketing
than the Company. The industry is characterized by rapid technological advances
and by the frequent introduction of new products. The Company's competitors may
develop their products more rapidly or complete the regulatory approval process
sooner, and therefore market their products earlier. New drugs and future
developments in alternative drug delivery technologies or other therapeutic
techniques may provide therapeutic or cost advantages to competing products.
Some brand-name competitors try to prevent or discourage the use of
generic equivalents through litigation and negative public relations campaigns.
Some brand-name competitors have bundled the sale of generic and patented
products and also have introduced generic versions of their own branded products
prior to the expiration of the patents for such drugs, which have resulted in a
greater market share for these companies following expiration of the applicable
patents.
The Company is witnessing a consolidation of its customers, as chain drug
stores and wholesalers merge or consolidate. In addition, a number of the
Company's customers have instituted source programs which limit the number of
suppliers of generic pharmaceutical products carried by that customer. As a
result of these developments, there is heightened competition among generic drug
producers for the business of this smaller and more selective customer base.
Government Regulation
All pharmaceutical manufacturers are subject to extensive regulation by the
federal government, principally the FDA and, to a lesser extent, by state and
local governments. The Federal Food, Drug and Cosmetic Act and other federal
statutes and regulations govern or influence the testing, manufacture, safety,
labeling, storage, record keeping, approval, advertising, promotion, sale and
distribution of pharmaceutical products. Noncompliance with applicable
requirements can result in fines, recall or seizure of products, total or
partial suspension of production and/or distribution, refusal of the government
to enter into supply contracts or to approve New Drug Applications ("NDA") or
ANDAs and criminal prosecution. The FDA also has the authority to revoke
previously granted drug approvals. Changes in FDA procedures have increased the
time and expense involved in obtaining ANDA approvals and in complying with the
FDA's current Good Manufacturing Practice ("cGMP") standards. The ANDA drug
development and approval process now averages approximately three to five years.
FDA approval is usually required before each dosage form of any new drug
can be marketed. Applications for FDA approval must contain information relating
to bioequivalency, product formulation, raw material suppliers, stability,
manufacturing processes, packaging, labeling and quality control. FDA procedures
require full-scale manufacturing equipment to be used to produce test batches
for FDA approval. Validation of manufacturing processes is also required by the
FDA before a company can market new products. The FDA conducts pre- and
post-approval reviews and plant inspections to implement these rules.
Supplemental filings for approval to transfer products from one manufacturing
site to another may be under review for a year or more, and certain products may
only be approved for transfer if new bioequivalency studies are done. The FDA
also has increased the number of regular inspections to determine compliance
with its cGMP standards.
The Waxman-Hatch Act of 1984 extended the established abbreviated
application procedure for obtaining FDA approval for generic forms of brand-name
drugs originally marketed before 1962 which are off-patent or whose
<PAGE>
market exclusivity has expired. This Act also provides market exclusivity
provisions which could preclude the submission or delay the approval of a
competing ANDA. One such provision allows a five-year market exclusivity period
for NDAs involving new chemical compounds and a three-year market exclusivity
period for new drug applications (including different dosage forms) containing
new clinical investigations essential to the approval of the application. The
market exclusivity provisions apply equally to patented and non-patented drug
products. Another provision may extend patents for up to five years as
compensation for reduction of the effective life of the patent as a result of
time spent by the FDA reviewing a drug application. Patents may also be extended
pursuant to the terms of the Uruguay Round Agreements Act.
In the past year there have been an increasing number of attempts to use
federal legislation to extend the patent life of various drugs beyond the term
permitted under current statutes. Although the generic drug industry thus far
has been mostly successful in defeating these attempts at extending the monopoly
of brand-name drugs, the Company could be adversely impacted if future
legislation is enacted which extends the patent exclusivity of a number of drugs
that are expected to come off patent in the coming years.
The Generic Drug Enforcement Act of 1992 establishes penalties for
wrongdoing in connection with the development or submission of an ANDA by
authorizing the FDA to permanently or temporarily debar companies or individuals
from submitting or assisting in the submission of an ANDA, and to temporarily
deny approval and suspend applications to market multi-source drugs. The FDA may
suspend the distribution of all drugs approved or developed in connection with
certain wrongful conduct and also has authority to withdraw approval of an ANDA
under certain circumstances. The FDA can also significantly delay the approval
of a pending NDA or ANDA under its "Fraud, Untrue Statements of Material Facts,
Bribery, and Illegal Gratuities Policy." Manufacturers of drugs must also comply
with the FDA's cGMP standards or risk sanctions such as the suspension of
manufacturing or the seizure of drug products and the FDA's refusal to approve
additional ANDAs.
Products marketed outside the United States which are manufactured in the
United States are subject to various export statutes and regulations, as well as
regulation by the country in which the products are to be sold.
Medicaid, Medicare and other legislation or programs govern reimbursement
levels, including requiring that all pharmaceutical manufacturers rebate to
individual states a percentage of their revenues arising from
Medicaid-reimbursed drug sales. The required rebate for generic drug
manufacturers is currently 11% of average net sales price for products marketed
under ANDAs. For products marketed under NDAs, including the glyburide,
micronized glyburide and pentoxifylline distributed by the Company,
manufacturers are required to rebate the greater of 15.1% of average net sales
price or the difference between average net sales price and the lowest net sales
price during a specified period. The Company believes that the federal and/or
state governments may continue to enact measures in the future aimed at reducing
the cost of drugs to the public. The Company cannot predict the nature of such
measures or their impact on the Company's profitability.
The Company also is governed by federal, state and local laws of general
applicability, such as laws regulating working conditions. In addition, the
Company is subject, as are manufacturers generally, to various federal, state
and local environmental protection laws and regulations, including those
governing the discharge of material into the environment. Compliance with such
environmental provisions is not expected to have a material effect on the
earnings, cash requirements or competitive position of the Company in the
foreseeable future. However, no assurance can be given that changes to or
compliance with such environmental provisions will not have a material effect on
the Company's earnings, cash requirements or competitive position.
ITEM 2: PROPERTIES
The Company operates three facilities in the Greater Boston area, including a
251,000 square foot manufacturing facility in Canton, Massachusetts, which
houses research and development, regulatory and quality affairs, production and
corporate offices. The Canton facility is owned by the Company, which financed
its initial acquisition and construction through the issuance of Industrial
Development Revenue Bonds, and is subject to a lien in favor of a commercial
lender. Refer to Note G of the Notes to Consolidated Financial Statements. The
Company owns and operates a 12,000 square foot manufacturing site in South
Boston. In 1996, the Company entered into a five-year lease with a five-year
renewal option for a 68,000 square foot warehousing and distribution facility in
Dedham, Massachusetts. During the fourth quarter of 1996, the Company, as part
of its restructuring efforts, consolidated its leased warehousing and
distribution facilities into this newly leased warehouse. Additionally, the
Company consolidated a packaging site from a leased facility in South Boston to
its Canton facility.
<PAGE>
ITEM 3: LEGAL PROCEEDINGS
The information required under this item is incorporated herein by reference to
the Company's Note L of the Notes to Consolidated Financial Statements included
herewith.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last three
months of the year ended December 31, 1997.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The Company's common stock is quoted on The NASDAQ National Market under the
symbol "CPLY." The following table sets forth the range of quarterly high and
low bid information for the common stock for the years ended December 31, 1996
and 1997:
Year Ended December 31, 1996 High Low
- --------------------------------------------------------------------------------
First Quarter $20.25 $13.25
Second Quarter 18.75 13.25
Third Quarter 14.25 9.50
Fourth Quarter 15.50 8.75
YEAR ENDED DECEMBER 31, 1997 HIGH LOW
- --------------------------------------------------------------------------------
FIRST QUARTER $ 9.63 $ 6.50
SECOND QUARTER 8.63 4.63
THIRD QUARTER 8.13 5.75
FOURTH QUARTER 8.88 5.30
As of March 16, 1998, there were approximately 274 shareholders of record and at
least 4,300 beneficial holders. The Company has never paid cash dividends on its
common stock. The agreement governing the Company's long-term indebtedness
contains prohibitions on the payment of cash dividends. The Company has no
intention of paying dividends in the foreseeable future.
ITEM 6: SELECTED FINANCIAL DATA
The information set forth below should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements and Notes thereto
included in this Report on Form 10-K. The Consolidated Statements of Operations
Data for the years ended December 31, 1997, 1996, 1995 and the eleven-month
period ended December 31, 1994, and the fiscal year ended January 31, 1994 are
derived from audited consolidated financial statements. The Consolidated
Statement of Operations Data for the year ended December 31, 1994 is unaudited
and is presented solely for comparative purposes.
<PAGE>
<TABLE>
<CAPTION>
Eleven-month
period ended Year ended
Years ended December 31, December 31, January 31,
(In thousands, except per share data) 1997 1996 1995 1994 1994 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 121,483 $ 123,461 $ 142,158 $ 120,348(c) $ 113,973(c) $ 86,268
Gross profit 29,655 29,430 41,269(b) 52,177 48,318 48,895
Operating expenses:
Research and development 11,672 13,682 13,299 9,938 9,057 8,115
Selling, general and administrative 11,870 19,635(a) 16,324 15,319 14,170 11,454
Recall related and litigation 3,687 12,343 17,830 4,691 2,766 4,925
Income (loss) from operations 2,426 (16,230) (6,184) 22,229 22,325 24,401
Net income (loss) 564 (12,673)(a) (2,543)(b) 15,109(c) 15,007(c) 6,370(d)
Diluted earnings (loss)
per share $ 0.03 $ (.66)(a) $ (.13)(b) $ .78(c) $ .78(c) $ .34(d)
Diluted weighted average
common shares outstanding 19,222 19,081 18,977 19,309 19,273 18,536
Balance Sheet Data:
Working capital $ 60,080 $ 48,179 $ 59,365 $ 56,704 $ 56,704 $ 55,444
Total assets 145,744 151,727 155,245 152,662 152,662 126,985
Long-term debt 4,800 5,100 5,400 5,700 5,700 6,000
Total shareholders' equity 100,881 100,131 112,524 112,683 112,683 98,588
<FN>
(a) Includes $3.5 million ($2.1 million after taxes; $0.11 per share) of
restructuring expenses.
(b) Includes $2.5 million ($1.5 million after taxes; $0.08 per share) of
albuterol materials inventory write-offs incurred as a result of the Company's
decision not to reintroduce this product.
(c) Includes approximately $2.0 million ($1.2 million after taxes; $0.06 per
share) of higher than anticipated albuterol product returns.
(d) Includes $7.9 million ($7.3 million after taxes; $0.40 per share) of
litigation settlement expense and $4.9 million ($2.9 million after taxes; $0.16
per share) of expenses associated with the HC tender offer.
</FN>
</TABLE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Overview
The Company reported net income of $0.6 million or $0.03 per share for the year
ended December 31, 1997. Excluding product recall, other litigation and cost
reduction initiatives related items, net income would have been $4.5 million or
$0.24 per share. Net sales of $121.5 million were 1.6% lower than 1996. New
product launches, primarily the distributed product pentoxifylline, contributed
$9.0 million to total revenues. Price erosion slowed in 1997, but prices still
fell by 9.9% or $12.2 million. Gross margin improved in 1997 to 24.4% from 23.8%
in 1996. Manufacturing process and inventory control improvements more than
offset the combined adverse effects of price erosion and the impact of the
renegotiated distribution agreements with HMRI. Refer to Note J of the Notes to
Consolidated Financial Statements for a further discussion of these agreements.
Operating expenses of $23.4 million, excluding restructuring and litigation
related items, were 21.5% below 1996 levels. Key events during 1997 included:
o The conclusion of the grand jury investigation of the Company.
o Three product launches, including pentoxifylline.
o The receipt of FDA approval for two products, and the submission of one
new ANDA, bringing the total awaiting approval to fifteen.
o Cost reduction initiatives including a company wide reduction in force and
the exit from two collaborative ventures, one domestic and one international.
Forward-looking statements (statements which are not historical facts) in
this report are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that all
forward-looking statements, including statements about product filings and
approvals, raw material supply, net sales, price erosion, gross profit, research
and development expenses, selling, marketing and distribution expenses, general
and administrative expenses, recall related and litigation expenses,
restructuring and other expenses, and
<PAGE>
interest expense, involve risks and uncertainties, including the risks and
uncertainties detailed below, and actual results may differ significantly from
those in any forward looking statements.
Net Sales
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In millions) 1997 Change 1996 1995
- --------------------------------------------------------------------------------
Manufactured products $ 70.9 (10.5)% $ 79.2 $ 76.3
Distributed products 50.6 14.3% 44.3 65.9
- --------------------------------------------------------------------------------
Net sales $121.5 (1.6)% $123.5 $142.2
- --------------------------------------------------------------------------------
Net sales for 1997 were $121.5 million, a decrease of 1.6% from 1996 net sales
of $123.5 million. Sales volumes of existing products were essentially flat,
with price erosion of existing products slightly greater than revenue increases
from new products. The Company expects price erosion to be less in 1998 than
1997.
In 1997 the Company introduced two new manufactured products: procainamide
HCl ER 1000 mg. tablets, the off-patent version of Parke-Davis's Procan(R)
SR; and diclofenac sodium delayed-release tablets, the off-patent version of
Ciba-Geigy's Voltaren(R). The Company also launched one new distributed product,
pentoxifylline, the generic version of HMRI's Trental(R).
Net sales for 1996 were $123.5 million, a decrease of 13.2% from the 1995
net sales of $142.2 million. Increases in volumes of existing products combined
with the launches of seven new products in 1996 were insufficient to offset
declining prices, principally for glyburide, the Company's major distributed
product.
Gross Profit
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In millions) 1997 Change 1996 1995
- --------------------------------------------------------------------------------
Manufactured products $18.2 21.2% $15.0 $18.2
As a % of manufactured
products net sales 25.6% 18.9% 23.8%
- --------------------------------------------------------------------------------
Distributed products $11.5 (20.4)% $14.4 $23.1
As a % of distributed
products net sales 22.7% 32.5% 35.0%
- --------------------------------------------------------------------------------
Gross profit $29.7 0.8% $29.4 $41.3
As a % of net sales 24.4% 23.8% 29.0%
- --------------------------------------------------------------------------------
The Company's gross profit increased to $29.7 million, or 24.4% of net sales,
for the year ended December 31, 1997 as compared to $29.4 million, or 23.8% of
net sales, for the same period in 1996 even though net sales decreased.
Manufactured product gross profit for the year ended December 31, 1997 at $18.2
million increased by 21.2% compared to the same period in 1996. Falling prices
were more than offset by the combined improvements in manufacturing processes
and inventory management. Distributed product gross profits of $11.5 million for
the year decreased 20.4% as compared to 1996. The introduction of the new
distributed product, pentoxifylline, did not contribute sufficient profit to
offset the impacts of falling prices and the renegotiated distribution contracts
on existing distributed products. Refer to Note J of the Notes to Consolidated
Financial Statements.
For the year ended December 31, 1996, the Company's gross profit decreased
to $29.4 million or 23.8% of net sales, as compared to $41.3 million, or 29.0%
of net sales for the same period in 1995. The decrease was primarily due to the
continued price erosion on the Company's products partially offset by cost
reductions resulting from improvements in manufacturing processes and inventory
management.
Operating Expenses
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In millions) 1997 Change 1996 1995
- --------------------------------------------------------------------------------
Research and development $11.7 (14.7)% $13.7 $13.3
As a % of manufactured
products net sales 16.5% 17.3% 17.4%
- --------------------------------------------------------------------------------
Selling, marketing and
distribution $ 4.6 (28.1)% $ 6.4 $ 5.4
As a % of net sales 3.8% 5.2% 3.8%
- --------------------------------------------------------------------------------
General and administrative $ 7.1 (26.9)% $ 9.7 $10.9
As a % of net sales 5.9% 7.9% 7.7%
- --------------------------------------------------------------------------------
Recall related and
litigation $ 3.7 (70.1)% $12.3 $17.8
As a % of net sales 3.0% 10.0% 12.5%
- --------------------------------------------------------------------------------
Restructuring $ 0.2 (95.2)% $ 3.5 --
As a % of net sales 0.1% 2.8%
- --------------------------------------------------------------------------------
<PAGE>
Research and development expenses decreased 14.7% to $11.7 million for the year
ended December 31, 1997 as compared to $13.7 million for the same period in
1996. Most of this cost reduction is attributed to lower product validation
costs, primarily a function of process improvements in the manufacture of
validation batches. During 1996, research and development costs increased 2.9%
to $13.7 million as compared to $13.3 million for the same period in 1995. The
Company expects research and development costs to increase in 1998 consistent
with its plan to increase the number of ANDA submissions as compared to 1997.
Selling, marketing and distribution expenses decreased 28.1% to $4.6
million for the year ended December 31, 1997 as compared to $6.4 million for the
previous year. Factors included in this cost reduction are reduced promotion and
advertising expenditures, and cost savings related to restructurings in December
1996 and June 1997. During 1996, selling, marketing, and distribution expenses
increased 18.6% to $6.4 million from $5.4 million in the prior year. Much of the
1996 increase was attributable to higher advertising and promotional expenses.
General and administrative expenses decreased 26.9% to $7.1 million as
compared to $9.7 million a year earlier, the second consecutive year of
decreased cost. Significant among these costs reductions in 1997 were savings in
compensation and benefits and a reduction in the cost of insurance premiums.
Recall related and litigation expenses for 1997 totaled $3.7 million,
significantly below charges of $12.3 million taken in 1996. The 1997 charges
included an adjustment to the 1996 reserve upon the Company's entry of a plea in
the grand jury investigation, and a smaller adjustment to the outstanding
reserve for remaining outstanding claims related to the albuterol product
liability cases. Refer to Note L of the Notes to Consolidated Financial
Statements for further discussion of these items.
In response to the increasing pricing pressures and eroding margins, the
Company restructured its operations in the fourth quarter of 1996. The
restructuring included the consolidation of warehouse, manufacturing and office
sites as well as the write off of underutilized and idle equipment and, to a
lesser extent, reductions in the labor force. The Company had a second reduction
in labor force during the second quarter of 1997.
Interest and Other Income (Expense)
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Interest and other investment income $ 1.4 $ 0.7 $ 1.1
- --------------------------------------------------------------------------------
Interest expense (0.6) (0.2) (0.3)
- --------------------------------------------------------------------------------
Other income (expense), net (1.6) (0.1) (0.2)
- --------------------------------------------------------------------------------
Interest and other investment income increased $0.7 million during 1997 to $1.4
million as compared to 1996 and is primarily attributable to increased average
cash available to invest. Interest expense also increased in 1997, by $0.4
million. Much of this increase relates to interest from a partial resolution of
an ongoing investigation by the Internal Revenue Service. Other income
(expense), net in 1997 is a charge of $1.6 million. This charge is primarily
related to cost reduction initiatives which include the write-off of assets
related to the Company's exit from a partnership in certain republics of the
former Soviet Union and the discontinuance of the Company's participation in a
collaborative research effort in the field of ophthalmology. Refer to Note J of
the Notes to Consolidated Financial Statements.
Taxes and Net Income (Loss)
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In millions) 1997 1996 1995
- --------------------------------------------------------------------------------
Income tax expense (benefit) $ 1.1 $ (3.2) $ (3.0)
- --------------------------------------------------------------------------------
Effective tax rate 66.5% (20.3)% (54.2)%
Net income (loss) $ 0.6 $(12.7) $ (2.5)
- --------------------------------------------------------------------------------
The effective tax rates increased in both 1997 and 1996 compared to 1995 due
primarily to the nondeductible nature of expenses associated with the resolution
of the grand jury investigation relating to the Company. Refer to Note L of the
Notes to Consolidated Financial Statements for a further discussion of this
matter.
For the year ended December 31, 1997, the Company reported a net income of
$0.6 million, or $0.03 per share, compared to a net loss of $12.7 million, or
$0.66 per share, for the same period in 1996. Excluding recall related and
litigation, restructuring and other charges related to cost reduction
initiatives, 1997 earnings would have been a net profit of $4.5 million, or
$0.24 per share. If 1996 had been restated to exclude similar items, it would
have resulted in a net loss of $0.1 million, or $0.01 per share.
<PAGE>
Risk Factors and Future Trends
Forward-looking statements (statements which are not historical facts) in this
report are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that all forward-looking
statements, including statements about product filings and approvals, raw
material supply, net sales, price erosion, gross profit, research and
development expenses, selling, marketing and distribution expenses, general and
administrative expenses, recall-related and litigation expenses, restructuring
and other expenses, and interest expense, involve risks and uncertainties,
including the risks and uncertainties detailed below, and actual results may
differ significantly from those in any forward looking statements.
The Company's future results of operations depend on its ability to obtain
FDA approval of ANDAs for its new products, to procure a continuous supply of
raw materials, to validate its manufacturing processes used to produce
consistent test batches for FDA approval and to receive continued customer
acceptance of its products. Raw materials are generally available from several
sources although this may not always be the case. Since the ANDA process
requires specification of raw material suppliers, if raw materials from
specified suppliers become unavailable, the Company would be required to file a
supplement to its product filing and revalidate the manufacturing process using
a new supplier's materials. This could cause a delay of several months in the
manufacture of the drug involved and the consequent loss of potential revenue
and market share. Additionally, there is often a time lag, sometimes
significant, between the receipt of ANDA approval and the actual marketing of
the approved product due to this validation process.
In the past year, there have been an increasing number of attempts to use
federal legislation to extend the patent life of various drugs beyond the term
permitted under current statutes. Although the generic drug industry thus far
has been mostly successful in defeating these attempts at extending the monopoly
of brand-name drugs, the Company could be adversely impacted if future
legislation is enacted which extends the patent exclusivity of a number of drugs
that are expected to come off patent in the coming years.
The Company's future results of operations also may be affected by a
variety of additional factors consistent with the nature of its business,
including, but not limited to, changes in the intensity of competition affecting
the Company's products and customers. Generic products with limited competition
are generally sold at higher prices, resulting in relatively high gross margins.
As multi-source competition increases, selling prices and gross margins can
decline dramatically and impair overall profitability. Brand-name competitors
are bundling the sale of generic and patented products as well as introducing
generic versions of their own branded products prior to the expiration of the
patents for such drugs, which is resulting in an increasing market share for
these brand-name competitors. The Company also has witnessed a consolidation of
its customers, as chain drug stores and wholesalers merge or consolidate.
Additionally, a number of the Company's customers have instituted source
programs which limit the number of suppliers of generic pharmaceutical products.
Management expects these trends and the resultant price erosion to continue. The
Company will need to provide a continuous stream of new products and maintain
its strong customer relations to offset these competitive pressures.
The Company's gross margin continues to be depressed by the
underutilization of its manufacturing facility. The Company, through its
restructuring of operations begun in the fourth quarter of 1996 and continuing
in 1997, consolidated some of its facilities in an attempt to streamline its
operations and took additional steps to reduce its overhead. It is anticipated
that the Company's gross margin will continue to be depressed by the
underutilization of its manufacturing facility during 1998 and until such time
as the volume of manufactured products increases significantly. Continuing
compliance with FDA cGMP standards and applicable environmental regulations will
also affect the Company's future results of operations. Significant investments
which increase the Company's overhead need to be made from time to time to
maintain the required infrastructure to comply with the FDA cGMP standards.
The Company has announced that it retained Oppenheimer & Co. to evaluate
strategic alternatives including possible business alliances. Pursuing these
strategic alternatives could divert management's attention and could result in
significant costs to the Company.
The Governance Agreement will expire on October 8, 1998. See
"Expiration of the Governance Agreement" below.
Kenneth N. Larsen resigned as President of the Company in January 1997.
Since that time, the Board of Directors has evaluated candidates for President
of the Company.
The albuterol related litigation and various other legal matters remain
unresolved in part or in whole. Refer to Note L of the Notes to Consolidated
Financial Statements for further discussion. Although the Company has
established reserves it believes appropriate for these matters, the final
outcome may exceed the estimates used in establishing those reserves and may
have a material adverse effect on the Company's consolidated financial
condition, liquidity and results of operations.
Year 2000 Issues
Many computer systems were not designed to handle any dates beyond the year 1999
and, therefore, computer hardware and software will need to be modified prior to
the year 2000 in order to remain functional; this is the so-
<PAGE>
called "Year 2000" problem. The Company's primary applications systems used to
manage the manufacturing, shipment of product, control of inventory and
performance of the accounting function have been vendor certified as Year 2000
compliant and the Company does not anticipate any material Year 2000 issues with
respect to these primary systems. However, the Company utilizes third-party
vendor network equipment, telecommunications products, manufacturing and testing
equipment and other third-party hardware and software products which may or may
not be Year 2000 compliant. In addition, the Company's customers and suppliers
may or may not face serious Year 2000 issues. The Company is formulating a plan
to evaluate the impact of, and if necessary to remediate the impact of, the Year
2000 issue on the Company. The Company expects that its plan will be in place in
the next several months and that its evaluation and remediation, if any, will be
completed before the end of 1999. The Company is not currently able to estimate
the expenses it may incur in evaluating and remediating any Year 2000 problems,
but does not currently expect those expenses to be material. Costs and expenses
of evaluating and remediating Year 2000 issues will be expensed as they are
incurred. Any failures of the Company's internal systems or any significant
interruptions of the business of its major suppliers or customers because of the
Year 2000 problem could have a material adverse effect on the Company's
business, consolidated results of operations and consolidated financial
condition, as well as result in significant expenses.
Expiration of Governance Agreement
In connection with HC's acquisition of a majority of the Company's outstanding
common stock in 1993, the Company and HC entered into a Corporate Governance and
Standstill Agreement (as amended, the "Governance Agreement"). The purpose of
the Governance Agreement was to provide limited protections to the minority
shareholders by restricting certain actions HC would otherwise be legally able
to take as the holder of the majority of the Company's stock. On October 8,
1998, the Governance Agreement will expire by its terms, with the exception of
certain limited protections that will continue in force as described below.
Some of the more significant protections in the Governance Agreement that
will expire are: (a) the requirement that the Board of Directors consist of nine
members, three being Company Directors, three being HC Directors and three being
Independent Directors (meaning jointly selected by the Company Directors and HC
Directors), and that committees of the Board of Directors be similarly
constituted; (b) the prohibition against HC and its affiliates acquiring
additional shares (other than as necessary to maintain its pre-existing
percentage ownership) or otherwise seeking to increase their control of
ownership of the Company without the Company's consent (including the consent of
at least one Company Director); (c) the prohibition against amendments of the
Company's charter and by-laws without the consent of at least one Company
Director; (d) the requirement that HC vote its shares in accordance with all
recommendations of the Board of Directors and not vote in opposition to any
recommendation of the Board of Directors; (e) the requirement that all
transactions between the Company, on the one hand, and HC and its affiliates, on
the other hand, and each transaction in which there is a potential conflict of
interest between the Company and its shareholders (other than HC and its
affiliates) on the one hand, and HC or its affiliates on the other hand, must be
approved by a majority of the Independent Directors; and (f) the requirement
that HC not sell its shares to any person whom HC knows would own 5% or more of
the outstanding shares unless such person agrees in writing to be bound by the
restrictions of the Governance Agreement and to forego certain benefits under
the Governance Agreement.
The restrictions that continue in effect after October 8, 1998, are: (a)
the prohibition against HC or its affiliates acquiring shares of the Company
without the approval of a majority of the Independent Directors, except in
certain privately negotiated, unsolicited transactions which do not reduce the
liquidity of the shares below the level expected to be necessary to maintain a
viable market for the shares and liquidity for the Company's shareholders; and
(b) the requirement that, so long as the Company is a public company, the Board
of Directors include at least three Independent Directors. For these purposes,
an "Independent Director" is a person who (i) is in fact independent, (ii) does
not have any direct financial interest or any material indirect financial
interest in HC or the Company or any of their respective affiliates, and (iii)
is not connected with HC or the Company or any of their respective affiliates as
an officer, employee, consultant, agent advisor, representative, trustee,
partner, director (other than of the Company) or person performing similar
functions. Other than these limited restrictions and subject only to such
fiduciary duties as a majority shareholder may have to minority shareholders
under Delaware law, HC, as a majority shareholder, will be able to exercise
substantial control of the Company, including the right to decide in its
discretion most matters requiring shareholder approval, such as the election of
future members of the Board of Directors and approval of any proposed merger or
acquisition of the Company.
The Company is unable to predict what effect, if any, the expiration of
the Governance Agreement will have on the Company. The expiration of the
Governance Agreement could have an effect on the Company's Board of Directors,
management, business plan or consolidated results of operations. In addition,
the expiration of the Governance Agreement may make it easier for the Company to
be acquired by a third party or for HC and its affiliates to acquire the shares
held by the minority shareholders. The Company is unable to predict the effect,
if any, that the expiration of the Governance Agreement will have on the
liquidity of the Company's stock and its price.
<PAGE>
Capital Resources and Liquidity
DECEMBER 31, December 31,
(In millions) 1997 1996
- --------------------------------------------------------------------------------
Cash and short-term investments $ 33.3 $ 29.7
Working capital 60.1 48.2
Long-term debt 4.8 5.1
Shareholders' equity 100.9 100.1
- --------------------------------------------------------------------------------
Working Capital
The Company's combined cash and short-term investments were $33.3 million as of
December 31, 1997 compared to $29.7 million a year earlier. The $3.6 million
increase primarily reflects $5.0 million of cash generated from operations
during 1997 offset by $1.3 million of capital expenditures. Working capital
increased $11.9 million primarily from the reclassification of $3.6 million of
recall related and litigation expenses to long-term liabilities (Refer to Note L
of the Notes to Consolidated Financial Statements) and the net income from
operations adjusted for noncash expenditures.
During 1997, the Company spent $1.3 million for machinery and equipment
and facility enhancements as compared to $8.4 million for 1996. The acquisitions
primarily related to the development and manufacturing of new products. During
the year ended December 31, 1995, the Company spent $21.1 million for capital
expenditures which included the $1.9 million buy-out of substantially all of its
leased manufacturing and research and development equipment and the acquisition
of parcels of land adjacent to the Canton, Massachusetts manufacturing facility.
These additions in all years were made from the cash generated from operations
without incurring additional borrowing. The Company anticipates spending less
than $5.0 million for machinery and equipment acquisitions and facility
enhancements during the year ending December 31, 1998.
Liquidity
On August 7, 1997, the Company amended its working capital line of credit
agreement to replace one of its financial covenants related to profitability
with a working capital covenant effective June 30, 1997. On July 31, 1996, the
Company amended its working capital line of credit agreement to increase its
maximum borrowing capacity from $20.0 million to $30.0 million. From time to
time the Company has been granted amendments and waivers to its credit
agreements.
At December 31, 1997 the Company had $14.85 million in stand-by letters of
credit related to the Albuterol Settlement Trust Fund outstanding under this
working capital line of credit agreement. These stand-by letters of credit were
obtained by the Company pursuant to the requirements of the Albuterol Settlement
Trust Fund to cover its uninsured obligation. Recourse to the letters of credit
are contingent upon the number of claims filed within certain categories and
will not occur until all claims are processed and settlement amounts are
recommended by the Special Master. In February 1998, the Company's stand-by
letters of credit were reduced by $3.15 million to reflect its additional cash
deposits made pursuant to the August 1997 Court Order. Refer to Note L of the
Notes to Consolidated Financial Statements for further discussion of the
Settlement Agreement.
The Company continues to make annual payments of $300,000 on its
outstanding Industrial Development Revenue Bonds the ("Bonds"), which are due in
2014. These Bonds are secured by a letter of credit agreement. Effective
December 31, 1996, the Company received from its lender waivers to its credit
agreements with respect to one of its financial covenants related to
profitability. In the event that the Company is unable to obtain future waivers,
if needed, the Company's debt would be reclassified as short-term debt and the
Company could lose its availability to cash under its line of credit.
The Company believes that its current cash resources, cash generated from
operations and the amount available under its amended working capital line of
credit will be sufficient to meet its anticipated operating needs for the next
twelve months. However, there can be no assurance that events in the future will
not require the Company to seek additional capital sooner or, if so required,
that such capital will be available at terms favorable or acceptable to the
Company, if at all.
Recent Accounting Developments
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share." This
statement replaces the presentation of primary earnings per share ("EPS") with a
presentation of basic EPS, which excludes dilution. This statement requires dual
presentation of basic and diluted EPS as well as a reconciliation of the
numerator and denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation. This statement is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement of all prior-period EPS data presented. Accordingly, all
EPS information presented in this report has been restated to comply with this
new standard.
<PAGE>
For fiscal years beginning after December 15, 1997 the Financial
Accounting Standards Board is requiring that comprehensive income and its
components be included as part of general-purpose financial statements. SFAS No.
130 defines comprehensive income as "the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes to equity during a
period except those resulting from investments by owners and distributions to
owners."
<PAGE>
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Copley Pharmaceutical, Inc.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, December 31,
(In thousands, except share data) 1997 1996
- ------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 13,847 $ 15,974
Available-for-sale securities 19,498 13,757
Accounts receivable, trade, net of
allowances for doubtful accounts
of $500 and $500, respectively 30,170 26,963
Accounts receivable, related party -- 61
Inventories 23,286 27,131
Current deferred tax assets 5,239 6,548
Other current assets 4,189 4,241
--------- ---------
Total current assets 96,229 94,675
--------- ---------
Property, plant and equipment, net 46,450 52,355
Deferred tax assets -- 215
Other assets 3,065 4,482
--------- ---------
Total assets $145,744 $151,727
--------- ---------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable, trade $ 2,583 $ 6,360
Accounts payable, related party 13,668 10,948
Current portion of long-term debt 300 300
Accrued compensation and benefits 1,275 1,398
Accrued rebates 9,071 6,908
Accrued income taxes 374 883
Accrued recall related and litigation
expenses 8,048 17,839
Accrued expenses 830 1,860
--------- ---------
Total current liabilities 36,149 46,496
--------- ---------
Accrued recall related and litigation expenses 3,645 --
Deferred tax liabilities 269 --
Long-term debt 4,800 5,100
Commitments and contingencies (Note L)
Shareholders' equity:
Preferred stock, $.01 par value;
authorized 3,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized
60,000,000 shares;
issued 25,370,745 shares 254 254
Additional paid-in capital 78,063 77,875
Unrealized holding (loss) on
available-for-sale securities (16) --
Retained earnings 35,133 34,569
Treasury stock, at cost, 6,235,978
and 6,266,258 shares
outstanding, respectively (12,553) (12,567)
--------- ---------
Total shareholders' equity 100,881 100,131
--------- ---------
Total liabilities and shareholders' equity $145,744 $151,727
--------- ---------
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
Copley Pharmaceutical, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In thousands, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
Net sales:
Manufactured products $ 70,873 $ 79,201 $ 76,279
Distributed products 50,610 44,260 65,879
--------- --------- ---------
Net sales 121,483 123,461 142,158
--------- --------- ---------
Cost of goods sold:
Manufactured products 52,725 64,233 58,104
Distributed products 39,103 29,798 42,785
--------- --------- ---------
Cost of goods sold 91,828 94,031 100,889
--------- --------- ---------
Gross profit 29,655 29,430 41,269
--------- --------- ---------
Operating expenses:
Research and development 11,672 13,682 13,299
Selling, marketing and distribution 4,590 6,388 5,384
General and administrative 7,110 9,721 10,940
Recall related and litigation 3,687 12,343 17,830
Restructuring 170 3,526 --
--------- --------- ---------
Income (loss) from operations 2,426 (16,230) (6,184)
--------- --------- ---------
Interest and other investment income 1,442 723 1,089
Interest expense (580) (241) (285)
Other income (expense), net (1,603) (144) (175)
--------- --------- ---------
Income (loss) before income taxes 1,685 (15,892) (5,555)
Provision (benefit) for income taxes 1,121 (3,219) (3,012)
--------- --------- ---------
Net income (loss) $ 564 $ (12,673) $ (2,543)
--------- --------- ---------
Weighted average common shares outstanding:
Basic 19,127 19,081 18,977
Diluted 19,222 19,081 18,977
Earnings (loss) per share:
Basic $ 0.03 $ (0.66) $ (0.13)
Diluted 0.03 (0.66) (0.13)
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
Copley Pharmaceutical, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1995, 1996 and 1997
Additional Unrealized Total
Common Stock Paid-In Retained Holding Treasury Stock Shareholders'
(In thousands) Shares Amount Capital Earnings Gain(Loss) Shares Amount Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 25,371 $254 $76,809 $49,785 $(1,446) 6,598 $(12,719) $112,683
Net income (loss) -- -- -- (2,543) -- -- -- (2,543)
Acquisition of treasury
stock by Employee Stock
Purchase Plan -- -- 290 -- -- (23) 11 301
Stock option exercises -- -- 221 -- -- (268) 123 344
Tax benefit from stock
option exercises -- -- 185 -- -- -- -- 185
Change in unrealized
holding gain (loss) on
available-for-sale securities -- -- -- -- 1,554 -- -- 1,554
------ ---- ------- ------- -------- ----- --------- ---------
Balance, December 31, 1995 25,371 254 77,505 47,242 108 6,307 (12,585) 112,524
Net income (loss) -- -- -- (12,673) -- -- -- (12,673)
Acquisition of treasury
stock by Employee Stock
Purchase Plan -- -- 295 -- -- (25) 11 306
Stock option exercises -- -- (5) -- -- (16) 7 2
Tax benefit from stock
option exercises -- -- 80 -- -- -- -- 80
Change in unrealized
holding gain (loss) on
available-for-sale securities -- -- -- -- (108) -- -- (108)
------ ---- ------- ------- -------- ----- --------- ---------
Balance, December 31, 1996 25,371 254 77,875 34,569 -- 6,266 (12,567) 100,131
NET INCOME (LOSS) -- -- -- 564 -- -- -- 564
ACQUISITION OF TREASURY
STOCK BY EMPLOYEE STOCK
PURCHASE PLAN -- -- 188 -- -- (30) 14 202
CHANGE IN UNREALIZED
HOLDING GAIN (LOSS) ON
AVAILABLE-FOR-SALE SECURITIES -- -- -- -- (16) -- -- (16)
------ ---- ------- ------- -------- ----- --------- ---------
BALANCE, DECEMBER 31, 1997 25,371 $254 $78,063 $35,133 $ (16) 6,236 $(12,553) $100,881
------ ---- ------- ------- -------- ----- --------- ---------
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Copley Pharmaceutical, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 564 $(12,673) $ (2,543)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 7,144 7,092 5,775
Realized losses on disposals of assets 1,349 4,795 3,025
Deferred income taxes 1,793 (2,379) (1,398)
Tax benefit from stock option exercises -- 80 185
Provision for doubtful accounts -- 696 --
Proceeds from sale of trading securities -- 601 --
Equity in loss (earnings) of unconsolidated affiliates (7) 54 --
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable (3,146) 5,745 (6,680)
Decrease (increase) in inventories 3,845 95 11,236
Decrease (increase) in other current assets 52 548 (1,885)
Decrease (increase) in other assets 121 (951) 1,598
Increase (decrease) in accounts payable (1,057) (2,184) 3,536
Increase (decrease) in accrued income taxes (509) 4,142 (59)
Increase (decrease) in accrued expenses (5,136) 10,476 (494)
-------- -------- --------
Net cash provided by operating activities 5,013 16,137 12,296
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (1,260) (8,401) (21,123)
Investments in unconsolidated affiliates (360) (2,252) (753)
Proceeds from sales of property, plant and equipment 201 113 500
Purchases of available-for-sale securities (18,448) (13,695) (24,172)
Proceeds from sales of available-for-sale securities -- 114 42,416
Proceeds from maturities of available-for-sale securities 12,825 5,000 3,224
-------- -------- --------
Net cash provided by (used in) investing activities (7,042) (19,121) 92
-------- -------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings -- -- 4,542
Payments of short-term borrowings -- -- (4,542)
Payments of long-term debt (300) (300) (300)
Stock option exercises -- 2 344
Issuance of common stock to Employee Stock Purchase Plan 202 306 301
-------- -------- --------
Net cash provided by (used in) financing activities (98) 8 345
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (2,127) (2,976) 12,733
Cash and cash equivalents at beginning of year 15,974 18,950 6,217
-------- -------- --------
Cash and cash equivalents at end of year $ 13,847 $ 15,974 $ 18,950
-------- -------- --------
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Copley Pharmaceutical, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Nature of Business
Copley Pharmaceutical, Inc. (the "Company") develops, manufactures, markets
and distributes a broad range of multi-source pharmaceutical products. These
products include prescription and over-the-counter ("OTC") drugs and are
available in a variety of dosage forms.
The Company's customers include retail chains, wholesalers, distributors,
hospitals, health maintenance organizations ("HMOs"), other managed care
entities and government agencies. For the year 1997, one customer accounted for
13.9% of total net sales and no other single customer accounted for more than
10% of total net sales. For the years 1996 and 1995, no single customer
accounted for more than 10% of total net sales.
The Company not only distributes multi-source products that it
manufactures, but also, as part of a distribution arrangement, markets and
distributes multi-source versions of certain drugs manufactured by Hoechst
Marion Roussel, Inc. ("HMRI"), a subsidiary of Hoechst Aktiengesellschaft
("Hoechst AG"), the Company's indirect 51% fully diluted shareholder. One of
these drugs, glyburide, accounted for 25.2% and 27.1% of the Company's 1997 and
1996 net sales, respectively. This product had limited competition until late in
1995, when competing products became available, resulting in significant erosion
of this product's selling price and related gross profit. Given this intensified
competitive environment, management expects continued decline in this product's
net sales and related gross profit in 1998. Refer to Note J for further
discussion of the distribution arrangements.
Historically, the Company's sales have been predominantly in the United
States. During 1995, the Company formed a wholly-owned subsidiary to focus on
foreign expansion opportunities. Refer to Note J for further discussion of the
Company's foreign investments. Because of the length of time it takes to
establish, register and receive approvals to manufacture or distribute products
in a foreign country, it may be an extended period of time before the Company
generates material international revenue.
The raw materials essential to the Company's business are purchased
primarily from U.S. distributors of bulk pharmaceutical chemicals manufactured
abroad. Such raw materials are generally available from several sources;
however, this may not always be the case. Since the federal drug application
process requires specification of raw material suppliers, if raw materials from
specified suppliers became unavailable, the Company would be required to file a
supplement to its product filing and revalidate the manufacturing process using
a new supplier's materials. This could cause a delay of several months in the
manufacture of the drug involved and the consequent loss of potential revenue
and market share.
As a multi-source drug manufacturer, the Company is subject to extensive
regulation by the Food and Drug Administration ("FDA"). Noncompliance with
applicable requirements can result in fines, recall or seizure of products,
total or partial suspension of production and/or distribution, refusal of the
government to enter into supply contracts or to approve New Drug Applications
("NDA") or Abbreviated New Drug Applications ("ANDA") and criminal prosecution.
The FDA also has the authority to revoke previously granted drug approvals.
Changes in FDA procedures have increased the time and expense involved in
obtaining ANDA approvals and in complying with the FDA's current Good
Manufacturing Practice ("cGMP") standards. The ANDA drug development and
approval process currently averages approximately three to five years.
B. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Copley
Pharmaceutical, Inc. and its wholly-owned subsidiaries. Significant intercompany
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Available-for-Sale Securities
Available-for-sale securities include the Company's investments in equity and
debt securities for which the Company does not have the positive intent or
ability to hold to maturity. Available-for-sale securities are carried at market
value, with unrealized gains and losses, net of tax, reported as a separate
component of shareholders'
<PAGE>
equity. Gross realized gains and losses on the sales of available-for-sale
securities are determined on the specific identification method and are included
in interest and other investment income.
Trading Securities
Trading securities include the Company's investment in debt securities held for
sale in the near term. Trading securities are recorded at market value with
unrealized and realized gains and losses recorded in interest and other
investment income. Gross realized gains and losses on the sales of trading
securities are determined on the specific identification method.
Accounts Receivable and Revenue Recognition
Revenue is recognized upon product shipment. Provisions for rebates, returns and
other adjustments are provided for in the same period as the related sales are
recorded. The Company's accounts receivable balance reflects the amount due from
its customers based on actual outstanding invoices less estimates of credits
that may be issued against these invoiced amounts including, but not limited to,
price adjustments and returned goods. The Company estimates credits to be issued
for price adjustments and returned goods incurred but not currently identified.
At December 31, 1997 and 1996 the estimated incurred costs were $3.7 million and
$2.4 million, respectively. Additionally, the Company provides for an allowance
for uncollectible accounts. The Company has experienced insignificant account
write-offs in the past; however, during 1996, one of the Company's major
customers filed for bankruptcy protection. These estimates are made by
management based on past experience and current trends. Actual results may
differ from these estimates.
Inventories
The Company values its inventories at the lower of cost or market on a first-in,
first-out basis. Management estimates the lower of cost or market based on
various assumptions about the future demand for the Company's products,
remaining products' shelf lives, and the future selling price and pricing
environment for the products. Actual results may differ from these estimates.
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost or, if the estimated
cash flows from the asset do not exceed the carrying value, the asset's fair
value. Maintenance and repairs which neither materially add to the value of the
property nor appreciably prolong its life are charged to expense as incurred.
Tooling costs are also expensed as incurred. Upon retirement or other
disposition, the cost and related accumulated depreciation are eliminated from
the accounts and the resulting gain or loss is included in income from
operations. Depreciation of property, plant and equipment is computed using the
straight-line method over the following estimated useful lives:
Estimated Useful Life
- ------------------------------------------------------------------------------
Building and improvements 25 years
Machinery and equipment 5-10 years
Motor vehicles 3-5 years
Furniture and fixtures 5 years
Leasehold improvements are amortized over the shorter of their estimated useful
lives or the term of the lease. Interest is capitalized in connection with
construction of major facilities. The capitalized interest is recorded as part
of the asset to which it relates and is amortized over the asset's estimated
useful life.
Research and Development
Research and development costs are expensed as incurred.
Advertising and Promotion
All costs associated with advertising and promoting products are expensed in the
year incurred.
Income Taxes
Deferred tax assets and liabilities have been established for the expected
future tax consequences of events that have been recognized in the Company's
consolidated financial statements and tax returns. These deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts and tax basis of assets and liabilities using
currently enacted tax rates that are expected to be in effect during the years
in which the differences are anticipated to reverse. Deferred tax provision
(benefit) represents the change in the deferred tax asset balance. Tax credits
are treated as reductions of income taxes in the year in which the credits
become available for income tax purposes.
<PAGE>
Earnings (Loss) Per Share
Earnings (loss) per share is computed by dividing earnings (loss) by the
weighted average number of common shares and common share equivalents, if
dilutive, outstanding during the period. Common share equivalents are calculated
under the treasury stock method and consist of unexercised employee stock
options.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share." This statement replaces the presentation of primary earnings per share
("EPS") with a presentation of basic EPS which excludes dilution. This statement
requires dual presentation of basic and diluted EPS as well as a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. This statement is effective for
financial statements issued for periods ending after December 15, 1997 and
requires restatement of all prior-period EPS data presented. Accordingly all EPS
information presented has been restated to comply with this new standard.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist principally of available-for-sale securities and trade
account receivables. It is the Company's policy to invest excess cash primarily
in investment-grade marketable securities. Concentrations of credit risk with
respect to trade account receivables are limited due to the large number of
customers comprising the Company's customer base and their dispersion across
different geographies.
C. Securities
Available-for-Sale Securities
<TABLE>
<CAPTION>
1997 1996
GROSS GROSS Gross Gross
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market
(In thousands) COST GAIN LOSS VALUE Cost Gain Loss Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In Current Assets:
Debt securities:
State and municipal
securities $ 1,000 $-- $ -- $ 1,000 $ 8,136 $ 7 $-- $ 8,143
U.S. Treasury and
government agencies 17,814 5 (18) 17,801 4,871 1 (5) 4,867
Other securities:
Bank certificates of deposit 700 -- (3) 697 750 -- (3) 747
------- --- ----- ------- ------- --- ---- -------
Total current available-
for-sale securities $19,514 $ 5 $(21) $19,498 $13,757 $ 8 $(8) $13,757
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Gross gains of $0 and gross losses of $0 were realized on sales of
available-for-sale securities in 1997, gross gains of $75,000 and gross losses
of $0 were realized on sales of available-for-sale securities in 1996 and gross
gains of $275,000 and gross losses of $409,000 were realized on sales of
available-for-sale securities during 1995.
Trading Securities
At December 31, 1995, the Company reclassified government agency securities with
a market value of $950,000 from available-for-sale securities to trading
securities as the Company was holding these securities for sale in the near
term. In 1995, a loss of $248,000 was recognized upon reclassification of these
securities and was included in interest and other investment income. In 1996,
these securities were sold and an additional loss of $349,000 was realized.
D. Inventories
DECEMBER 31, December 31,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------
Raw materials $ 6,596 $12,580
Work in process 5,282 4,390
Finished goods 11,408 10,161
--------- ---------
Total inventories $23,286 $27,131
- ------------------------------------------------------------------------------
<PAGE>
During the third quarter of 1995, the Company wrote off $2.5 million of
albuterol-related materials inventory after the decision was made by management
not to reintroduce albuterol. This write-off was included in the cost of goods
sold for manufactured products.
E. Property, Plant and Equipment
DECEMBER 31, December 31,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------
Land $ 3,335 $ 3,335
Building and improvements 31,882 31,700
Machinery and equipment 31,393 31,020
Motor vehicles 44 58
Furniture and fixtures 5,144 4,940
Leasehold improvements -- 100
---------- ----------
71,798 71,153
Less: accumulated depreciation and amortization (26,154) (19,109)
---------- ----------
45,644 52,044
Construction in process 806 311
---------- ----------
Total property, plant and equipment $ 46,450 $ 52,355
- ------------------------------------------------------------------------------
During 1995, the Company realized a loss of $2.9 million on the disposal
of equipment related specifically to the manufacture of albuterol after the
decision was made by management not to reintroduce this recalled product. This
loss was included in recall related and litigation expenses.
Depreciation and amortization of fixed assets was $7.1 million, $7.1
million and $5.7 million for 1997, 1996 and 1995, respectively.
F. Income Taxes
The effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1996 are as follows:
DECEMBER 31, December 31,
(In thousands) 1997 1996
- ------------------------------------------------------------------------------
Deferred tax assets:
Acquired joint product development rights $ 914 $ 973
Tender offer costs 1,974 1,972
Recall and litigation accrual 1,615 3,257
Operating loss and tax credit carryforwards 1,796 1,235
Charitable contribution carryforwards 741 620
Difference in accounting for inventory and
accounts receivable 596 871
Difference in cost recognition basis,
accrual for books and cash for tax 490 565
------- --------
Total deferred tax assets 8,126 9,493
Deferred tax liabilities:
Depreciation (3,156) (2,730)
------- --------
Total net deferred tax assets $ 4,970 $ 6,763
- ------------------------------------------------------------------------------
Deferred tax assets are expected to be realized through the reversal of existing
deferred tax liabilities and from the recognition of future taxable income.
Realization of the deferred tax assets is dependent on generating sufficient
future taxable income or the availability of carryback provisions. Although
realization is not assured, management believes that it is more likely than not
that all of the deferred tax assets will be realized and, accordingly, has not
provided a valuation allowance. The amount of deferred tax assets considered
realizable could be reduced in the near term if estimates of future taxable
income are reduced.
<PAGE>
Provision for (benefit of) income taxes consist of the following:
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Current income taxes (benefit):
Federal $(1,149) $(1,033) $(1,701)
State 477 193 87
------- ------- -------
(672) (840) (1,614)
------- ------- -------
Deferred income tax expense (benefit):
Federal 2,102 (1,272) (26)
State (309) (1,107) (1,372)
------- ------- -------
1,793 (2,379) (1,398)
------- ------- -------
Total:
Federal 953 (2,305) (1,727)
State 168 (914) (1,285)
------- ------- -------
$ 1,121 $(3,219) $(3,012)
- --------------------------------------------------------------------------------
The income tax expense (benefit) for the years 1997, 1996 and 1995 varied from
the amount computed by applying the statutory income tax rate to income (loss)
before taxes. The reasons for the differences are as follows:
<TABLE>
<CAPTION>
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory rate $ 590 35% $(5,562) (35)% $(1,944) (35)%
Increases (decreases)
in taxes resulting from:
State income taxes, net of
federal tax benefit 109 6% (594) (4)% (835) (15)%
Research tax credits -- -- (200) (1)% (163) (3)%
Tax-exempt interest and dividends (263) (16)% (136) (1)% (102) (2)%
Non-deductible portion of recall related
and litigation expenses 650 39% 3,127 20% -- --
Other, net 35 2% 146 1% 32 1%
------ ---- ------- ----- -------- -----
$1,121 66% $(3,219) (20)% $(3,012) (54)%
- -------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards of
approximately $8,737,000 which are available to offset future state taxable
income through the year ended December 31, 2002. In addition, at December 31,
1997, the Company had approximately $1,834,000, $938,000 and $1,003,000 of
charitable contribution carryforwards, research credit carryforwards and
investment credit carryforwards, respectively, that are available to offset
future taxable income through the years 2002, 2012 and 2000, respectively.
G. Debt
DECEMBER 31, December 31,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
Industrial Development Revenue Bonds (a) $5,100 $5,400
Less: current portion (300) (300)
-------- ---------
$4,800 $5,100
- --------------------------------------------------------------------------------
(a) Interest is payable monthly at a floating rate based on the prime rate. The
effective interest rate for the Bonds approximated 4.5%, 4.3% and 4.7% for the
years 1997, 1996 and 1995, respectively.
The Industrial Development Revenue Bonds (the "Bonds") were issued for the
initial acquisition and construction of the Company's headquarters and principal
manufacturing site at 25 John Road, Canton, Massachusetts. The Bonds would have
originally matured on August 1, 2004; however, in July 1990, the Bonds were
amended to extend the maturity date to August 1, 2014. Scheduled repayments of
the debt are: 1998, $300,000; 1999, $300,000; 2000, $300,000; 2001, $300,000;
2002, $300,000; 2003 and thereafter, $3,600,000.
In order to secure the timely payment of principal and interest on the
Bonds, the Company has entered into a letter of credit agreement with its
primary financial institution. The letter of credit agreement imposes minimum
requirements on the maintenance of working capital and certain financial ratios
and includes restrictions on cash
<PAGE>
dividends, repurchases of the Company's capital stock, certain investments,
advances, guarantees and borrowings. The Letter of Credit and the Bonds are
collateralized by the Company's property at 25 John Road, Canton, Massachusetts,
including land, buildings and equipment thereon and are further collateralized
by an assignment of leases and rents on the Company's South Boston property.
Costs of $704,000 associated with the issuance of the Bonds are being
amortized to interest expense over the 25-year life of the Bonds. The
unamortized balance of $301,000 and $319,000 at December 31, 1997 and December
31, 1996, respectively, is included in other assets.
On August 7, 1997, the Company amended its working capital line of credit
agreement to replace one of its financial covenants related to profitability
with a working capital covenant effective June 30, 1997. On July 31, 1996 the
Company amended its working capital line of credit agreement to increase its
maximum borrowing capacity from $20.0 million to $30.0 million. On August 30,
1995, the Company had amended this working capital line of credit agreement to
increase its maximum borrowing capacity from $7.5 million to $20.0 million. This
amendment also provided for the issuance of standby letters of credit and
includes related provisions for payment of letter of credit fees equal to 1% of
the face amount of outstanding standby letters of credit. At December 31, 1997
and 1996, the Company had $14.85 and $17.1 million, respectively, in outstanding
standby letters of credit related to the Albuterol Settlement Trust Fund. In
February, 1998 the Company's stand-by letters of credit were reduced by $3.15
million to reflect its additional cash deposits made pursuant to the August 1997
court order. Refer to Note L for more information on the Albuterol Settlement
Trust Fund.
Borrowings under the working capital line of credit agreement are due on
demand and bear interest, payable monthly, at the bank's prime rate. The prime
rate was 8.50%, 8.25% and 8.50% at December 31, 1997, 1996 and 1995,
respectively. Borrowings are collateralized by the Company's properties located
in Canton and South Boston, Massachusetts, including land, buildings and
equipment thereon. The line of credit imposes restrictive covenants regarding
the sale or encumbrance of the land and the building as well as minimum
requirements on the maintenance of working capital and certain financial ratios
and includes restrictions on cash dividends. Subsequent to year-end 1996, the
Company received from its lender waivers to its credit agreements with respect
to one of its financial covenants related to profitability, effective December
31, 1996. There can be no assurance that the Company will not require additional
waivers in the future or, if required, that the lender will grant them. In the
event that the Company is unable to obtain future waivers, if needed, the
Company's debt would be reclassified as short-term debt and the Company could
lose its availability to cash under its line of credit.
H. Common and Preferred Stock
At December 31, 1997 the Company had 1,964,888 shares of common stock reserved
for future issuance in connection with the Company's stock option plans. The
Board of Directors has not assigned any terms to the authorized but unissued
3,000,000 shares of preferred stock.
I. Employee Benefits
Stock Option Plans
Under the 1992 Stock Plan ("1992 Plan"), the Compensation Committee of the Board
of Directors may recommend that any employee, consultant or officer be granted
incentive stock options or nonqualified stock options to purchase the Company's
common stock. The Board of Directors has the authority to select optionees and
determine the terms of the options granted. Under the 1992 Stock Plan, the
options generally become exercisable cumulatively, beginning on the date of
grant, in equal annual installments of 25%, and expire ten years from the date
of grant. In 1995, the shareholders approved an amendment to increase the
maximum number of shares available to be granted under the 1992 Plan from
1,023,750 to 1,523,750 shares. At December 31, 1997 the Company had 713,175
shares available to grant under this plan.
On May 24, 1995, the Board of Directors voted to allow all non-officer
option holders under the 1992 Plan to elect to exchange their existing options
with an exercise price in excess of $16.50 per share for options with an
exercise price of $16.50 per share, the closing price on May 23, 1995, provided
they forfeit 25% of the shares covered by the options elected to be repriced.
Total options elected to be repriced were 212,875, approximately 75% of the
eligible shares.
In May 1995, the shareholders voted to replace the 1992 Non-Employee
Director Stock Option Plan with the 1995 Non-Employee Director Stock Option Plan
(the "Director Plan"). Under the Director Plan, upon initial election or
appointment to the Board, the Company automatically grants to its non-employee
directors, excluding directors of affiliated companies, nonqualified stock
options to purchase 15,000 shares of the Company's common stock. This initial
grant vests in equal annual installments of 33 1/3% beginning on the date of
grant. After this initial vesting period, on each subsequent anniversary date,
non-employee directors receive fully-vested nonqualified stock options to
purchase 3,333 shares of the Company's common stock. The stock options are
granted at an exercise price equal to the fair market value of the Company's
common stock on the date of grant and
<PAGE>
expire ten years from the date of grant. The Director Plan authorized the
issuance of 250,000 shares of common stock. At December 31, 1997 the Company had
208,336 shares available to grant under this plan.
The Company has an Employee Stock Purchase Plan that authorizes the
issuance of a maximum of 450,000 shares of common stock pursuant to the exercise
of nontransferable options granted to participating employees. At December 31,
1997 the Company had 350,180 shares available to grant under this plan.
Stock option activity during 1995, 1996 and 1997 was as follows:
Shares Option Price Per Share
- --------------------------------------------------------------------------------
Outstanding at December 31, 1994 1,006,878 $ 0.16 - $36.50
Options granted 554,656 14.00 - 21.00
Options exercised (267,514) 0.16 - 16.50
Options forfeited (253,375) 10.00 - 36.50
----------- -----------------------
Outstanding at December 31, 1995 1,040,645 0.16 - 23.50
----------- -----------------------
Options granted 16,666 14.00 - 17.75
Options exercised (15,908) 0.16
Options forfeited (304,669) 10.00 - 23.50
----------- -----------------------
Outstanding at December 31, 1996 736,734 0.93 - 23.50
----------- -----------------------
OPTIONS GRANTED 64,999 6.38 - 7.56
OPTIONS FORFEITED (108,536) 14.25 - 23.50
----------- -----------------------
OUTSTANDING AT DECEMBER 31, 1997 693,197 $ 0.93 - $23.50
- --------------------------------------------------------------------------------
The following table summarizes information about the Company's stock options
outstanding at December 31, 1997.
Year of expiration Shares Option Price Per Share
- --------------------------------------------------------------------------------
1999 35,852 $ 0.93
2000 69,757 0.93
2002 216,819 10.00
2004 182,438 16.50 - 23.50
2005 116,666 14.00 - 17.25
2006 6,666 14.00
2007 64,999 $ 6.38 - $7.56
-----------
693,197
- --------------------------------------------------------------------------------
At December 31, 1997, 1996 and 1995, exercisable options totaled 634,447,
608,453 and 625,301, respectively. Treasury shares of common stock have been
used upon exercise of stock options. The difference between the cost of the
treasury stock used and the total option price of shares exercised has been
reflected in additional paid-in capital.
During 1996, the Company adopted the disclosure-only provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," but, as permitted, continues
to apply Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for its stock option plans. If the Company had elected to
recognize compensation expense for the stock option plans based on the fair
value at the grant dates for awards under those plans consistent with the method
prescribed by SFAS No. 123, the Company's results would have reflected
additional compensation expense of approximately $1,350,000, $1,106,000 and
$1,618,000 for 1997, 1996 and 1995, respectively. Net income (loss) and earnings
(loss) per share would have been changed to the pro forma amounts indicated as
follows:
YEAR ENDED Year ended Year Ended
DECEMBER 31, December 31, December 31,
(In thousands, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
Net income (loss):
As reported $ 564 $(12,673) $(2,543)
Pro forma (241) (13,333) (3,508)
Diluted earnings (loss) per share:
As reported $ 0.03 $ (0.66) $ (0.13)
Pro forma (0.01) (0.70) (0.18)
- --------------------------------------------------------------------------------
As the provisions of SFAS No. 123 have not yet been applied to options granted
prior to January 1, 1995, the resulting pro forma compensation expense may not
be representative of that to be expected in future years.
<PAGE>
The fair value of the Company's stock options used to compute pro forma
net income (loss) and diluted earnings (loss) per share disclosures is the
estimated present value at grant date using the Black-Scholes option-pricing
model with the following weighted average assumptions for 1997, 1996 and 1995,
respectively: dividend yield of 0%, 0% and 0%; expected volatility of 55%, 60%
and 60%; a risk free interest rate of 6.4%, 6.3% and 6.3% and the expected
holding period of 5 years, 5 years and 5 years.
Savings Plan
The Company has a defined contribution plan that qualifies under Section 401(k)
of the Internal Revenue Code for the benefit of substantially all full-time,
eligible employees. Employees may contribute between 1% and 15% of their salary
up to the dollar maximum allowed by the Internal Revenue Service. Company
contributions were voluntary and made at the discretion of the Board of
Directors. In January 1996, the Board of Directors voted to assure a minimum
Company contribution of at least 2% of qualified compensation up to the limits
allowed by the Internal Revenue Service. The Company expensed $290,000, $123,000
and $500,000 for contributions under this plan for the years ended 1997, 1996
and 1995, respectively.
Deferred Compensation Plan
The Company established an unfunded deferred compensation plan in August 1995 to
allow for certain of its management or highly compensated employees to defer the
receipt of specified compensation under Sections 201(2), 301(a)(3) and 401(a)(1)
of the Employee Retirement Income Security Act of 1974.
Employee Bonus Plan
The Company makes cash bonus awards to employees, at the discretion of the Board
of Directors, based upon operating results and employee performance. Net bonus
expense was $0, $315,000 and $181,000 for the years 1997, 1996 and 1995,
respectively.
J. Related Party Transactions
In November 1993, Hoechst Corporation ("HC"), through an indirect wholly-owned
subsidiary, completed a tender offer and acquired 51% of the fully diluted
shares of the Company.
On July 18, 1995, HC completed its purchase of Marion Merrell Dow Inc.
("MMD") and changed MMD's name to Hoechst Marion Roussel, Inc. ("HMRI"). The
acquisition of MMD and the formation of HMRI resulted in a related party
relationship between the Company and its customer, Rugby Laboratories ("Rugby"),
which was a subsidiary of MMD and subsequently a subsidiary of HMRI. Net sales
to Rugby were approximately $17,000, $1.0 million and $4.1 million for the years
1997, 1996 and 1995, respectively. Total amounts due from Rugby at December 31,
1997 and 1996 were approximately $0 and $61,000, respectively. Effective
February 27, 1998, Rugby was sold by HMRI to an unrelated third party.
In connection with HC's acquisition of its majority interest in the
Company, the Company is a party to a Product Agreement with HC pursuant to which
the Company is afforded the opportunity under specified conditions to distribute
and market the generic version of products sold by Hoechst-Roussel
Pharmaceuticals Inc. ("HRPI"), which was an indirect majority-owned subsidiary
of HC. This Product Agreement has an initial term of five years, until November
11, 1998, and continues unless terminated by either party giving one year's
notice. On January 1, 1996, HRPI was merged into HMRI. HMRI has agreed to be
bound by the Product Agreement to the extent that HRPI was bound; that is, the
Product Agreement continues to be in effect for products manufactured by the
former HRPI but not for products manufactured by HMRI prior to the merger with
HRPI nor for products developed by HMRI after January 1, 1996. In furtherance of
the Product Agreement, the Company and HMRI entered into separate contracts
relating to specific products as these products became available for generic
distribution and these separate contracts now continue in effect beyond the
expiration of the product agreement. In order to assure continuity of supply and
to provide other competitive benefits, the Company, in 1997, renegotiated the
distribution contracts relating to glyburide and micronized glyburide; as a
result, the profit contribution of these products decreased in 1997. In 1997 the
Company entered into an agreement to distribute HMRI's pentoxifylline product.
For the years 1997, 1996 and 1995, approximately $39,555,000, $30,814,000 and
$42,470,000, respectively, of generic versions of products were purchased from
HMRI. The Company does not expect to distribute or market any additional
products under the Product Agreement.
As part of the relationship with HC, the Company also is afforded the
opportunity to purchase generic bulk pharmaceutical ingredients from entities
related to HC under certain circumstances. During 1997 and 1996, the Company
purchased approximately $151,000 and $230,000, respectively, of generic bulk
products under these agreements. The Company is aware that HC has announced its
intention to deemphasize the generic bulk pharmaceutical manufacturing business
and the Company is pursuing alternative sources.
The Company obtains its comprehensive general liability, product
liability, umbrella liability and all risks property insurance coverage through
an insurance and risk-sharing arrangement with HC and its parent, Hoechst AG,
and its various subsidiaries. Insurance coverage is provided by HC, through its
wholly-owned insurance
<PAGE>
subsidiary, as well as by external parties. Total premiums paid by the Company
for these insurance policies aggregated approximately $4,763,000, $5,140,000 and
$3,210,000 for the years 1997, 1996 and 1995, respectively.
For the years ended 1997, 1996 and 1995, the Company purchased
approximately $26,000, $265,000 and $808,000, respectively, of bulk raw
chemicals from a chemical company whose president is a member of the Company's
Board of Directors.
For the years ended 1997 and 1996, the Company invested approximately
$360,000 and $59,000 respectively, in a multi-source pharmaceutical company, MIR
Pharmaceutical, whose senior vice president is a member of the Company's Board
of Directors. This company was founded in 1993 to market multi-source drugs,
including products manufactured by the Company, in certain republics of the
former Soviet Union. This investment was written off in June 1997 in the amount
of approximately $955,000. The write-off was included in other income (expense).
The Company plans to continue to manufacture and market products for sale in
certain republics of the former Soviet Union through MIR Pharmaceutical.
At December 31, 1997, the Company was a 49% owner of Chia Tai Copley
Pharmaceutical ("CTCP") which, in turn, was an 85% owner of Wuxi Chia Tai Copley
Pharmaceutical ("WCTCP"). CTCP and WCTCP were formed to manufacture and market
multi-source drug products in the People's Republic of China. The Company's
investment in CTCP totaled $2.4 million and $2.4 million at December 31, 1997
and 1996, respectively.
During 1995, the Company's Board of Directors voted to decrease the
Company's financial commitment to and deemphasize the Company's role in CTCP and
WCTCP. Subsequently a subsidiary of Hoechst AG indicated its desire to purchase
an interest in WCTCP and it is anticipated that if this transaction is
completed, the Company will receive the return of approximately $2.1 million of
its investment in CTCP and will experience a corresponding reduction in its
ownership interest in CTCP. This investment is accounted for under the equity
method.
K. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments:
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity of
these instruments.
Securities
The fair values of those instruments are estimated based on quoted market prices
for these or similar investments.
Long-term Debt
The fair value of the Company's long-term debt is estimated by discounting cash
flows based on similar current rates offered to the Company for debt of the same
remaining maturities.
DECEMBER 31, 1997 December 31, 1996
CARRYING FAIR Carrying Fair
(In thousands) VALUE VALUE Value Value
- --------------------------------------------------------------------------------
Cash and cash equivalents $13,847 $13,847 $15,974 $15,974
Available-for-sale securities 19,498 19,498 13,757 13,757
Long-term debt 5,100 5,100 5,400 5,400
- --------------------------------------------------------------------------------
L. Commitments and Contingencies
Leases
During 1996, the Company restructured its operations by consolidating warehouse,
manufacturing and office sites. The Company consolidated its warehouse and
distribution operations into one location under a noncancelable operating lease
with a third-party lessor. This lease is for five years with a five-year renewal
option and requires the payment of insurance, real estate taxes and other
operating expenses. Additionally, during 1996 the Company leased, on a monthly
basis, a warehouse and packaging site from a real estate trust that is 50% owned
by a member of the Company's Board of Directors; by year end 1996 the Company
consolidated these operations into the existing facilities and terminated this
lease. The Company also leases vehicles and office equipment under one- to
five-year operating leases.
Net rental expense was $797,000, $1,053,000 and $1,720,000 for 1997, 1996
and 1995, respectively, which included related party rental expense of $0,
$180,000 and $171,000, respectively.
Future minimum lease payments under noncancelable operating leases are as
follows:
<PAGE>
(In thousands)
- ------------------------------------------------------------------------------
1998 $ 661
1999 535
2000 535
2001 484
2002 1
Thereafter --
- ------------------------------------------------------------------------------
Total minimum lease payments $2,216
- ------------------------------------------------------------------------------
Albuterol Class Action Lawsuits
In connection with the Company's December 1993 and January 1994 product recall
of albuterol sulfate inhalation solution, 0.5% ("albuterol"), the Company has
been served with complaints in numerous lawsuits in federal and state court,
some of which are on behalf of numerous claimants. The plaintiffs principally
seek compensatory and punitive damages and allege that injuries and deaths were
caused by inhalation of allegedly contaminated product manufactured and
distributed by the Company.
The federal court lawsuits were consolidated in the United States District
Court for the District of Wyoming as a multi-district litigation for pre-trial
purposes under the caption In Re: Copley Pharmaceutical, Inc. "Albuterol"
Products Liability Litigation. The District Court certified a partial class
action for determination of liability only and commenced a jury trial in June
1995. In August 1995, prior to the conclusion of the jury trial, the Company
entered into a settlement agreement with the representative plaintiffs in the
class action lawsuit. The settlement calls for the Company to receive a general
release of all non-death claims in return for contributions by the Company and
its insurers of a minimum of $65 million and a maximum of $130 million to settle
all non-death claims relating to the Company's manufacture, sale and recall of
albuterol. An additional $20 million is allocated under the terms of the
settlement as an estimate of the cost of settling claims by persons alleging
wrongful death, which claims are limited by the settlement to compensatory
damages only and are subject to non-binding negotiation and arbitration. Within
the Company's minimum and maximum contributions, the amount to be paid by the
Company is subject to the number and seriousness of individual claims eventually
filed. On November 15, 1995, the District Court entered its Order giving final
approval of the settlement. This Order has become final and nonappealable.
The settlement agreement requires the $150 million maximum contribution to
be funded by an initial $50 million cash deposit and issuance of letters of
credit for the remaining balance, to be held by the Albuterol Settlement Trust
Fund as security for potential future payments. The Company negotiated
agreements with its insurers pursuant to which the Company and its insurers have
agreed to pay defined percentages of required settlement payments and related
expenses. During the third quarter of 1995, the Company paid $5.1 million to the
Albuterol Settlement Trust Fund and obtained approximately $17.1 million in
irrevocable stand-by letters of credit to cover its uninsured obligation to fund
the settlement agreement. The settlement agreement required an additional $15
million cash deposit after the order approving the settlement became final and
nonappealable, which occurred in late December 1996. In January 1997, the
Company made an additional $2.25 million cash deposit and its stand-by letters
of credit were reduced by a like amount. The balance was funded by one of the
Company's insurers. These cash contributions made by the Company totaling $7.35
million are nonrefundable pursuant to the terms of the settlement agreements.
In August 1997, the Wyoming District Court ordered the Company to make
additional cash deposits totaling $3.15 million to fund the Company's portion of
payments of settlement amounts for class action cases alleging wrongful death as
well as the settlement of opt-out cases, legal fees and other related expenses.
The Company's stand-by letters of credit were reduced by a like amount in
February 1998. In addition, one of the Company's insurers paid $17.85 million
and its letter of credit was released.
Approximately 5,540 proofs of claim (including approximately 560 alleging
wrongful death) have been filed with the Special Master appointed by the Court
to oversee the Albuterol Settlement Trust Fund. The Special Master has approved
approximately 3,800 class action claims totaling approximately $55 million. No
awards have been made to approximately 1,500 non-death class action claims and
the District Court gave these claimants until December 31, 1997 to supplement
their claims. In addition, approximately 820 clients of Jacoby & Meyers,
representing nearly all of that firm's clients who are not alleging a death
caused by albuterol, have agreed to be treated as if they were class members and
class counsel have agreed that these claimants will be paid out of the Albuterol
Settlement Trust Fund.
Recourse to the remaining letters of credit in the class action settlement
will not occur until all claims are processed and settlement amounts are
recommended by the Special Master, and is contingent on the number of claims
filed within certain categories. Although the total number of claims filed
against the Albuterol Settlement Trust Fund is less than the number of claims
the settling parties anticipated would be necessary to require the maximum
funding of the Albuterol Settlement Trust Fund, at this time the Company is
unable to determine how many of these claims will be awarded damages by the
Special Master and, if awarded damages, how much will be given to various
claimants. In addition, administrative fees and class action attorney fees and
expenses will be paid
<PAGE>
out of the Albuterol Settlement Trust Fund. Accordingly, the Company cannot
predict the total amount to be paid out of the Albuterol Settlement Trust Fund.
The settlement also is subject to certain other contingencies and does not
cover certain individuals who previously opted out of the class action. The
Company continues to be a defendant in lawsuits that were brought by or on
behalf of less than five people who properly opted out of the class action. In
May 1997, a settlement was concluded in two lawsuits involving approximately 45
of these opt-out claimants. The Company also has settled approximately 35 other
lawsuits or claims brought by people who opted out of the class action suit. The
settlements were previously reserved and did not have a material impact on the
current year's earnings.
Grand Jury Investigation
On May 28, 1997, the Company announced that it had entered into a plea agreement
pursuant to which it agreed to waive indictment and plead guilty to a one count
Information charging a violation of Title 18, United States Code, Section 371, a
conspiracy to defraud the United States and one of its agencies, the Food and
Drug Administration ("FDA"). The Information alleged that Copley made changes in
the manufacturing processes for four drugs (only two of which, procainamide 500
mg tablets and potassium chloride tablets, currently are being manufactured by
the Company) without proper notification to the FDA and signed false batch
records with respect to two of these drugs. As part of the plea agreement, the
Company agreed to pay a fine of $10.65 million, $3.55 million of which was paid
in June 1997, with the remainder due in two equal installments plus interest in
June 1998 and June 1999. The plea was accepted by the United States District
Court for the District of Massachusetts on June 19, 1997.
The plea agreement followed a nearly three-year investigation and grand
jury subpoenas from the United States Attorney's Office in Massachusetts for
documents focusing particularly on albuterol and Brompheril(R) products, which
were recalled by the Company in December 1993 and September 1994, respectively,
but extending beyond these products. The Company complied with the subpoenas and
cooperated with federal authorities throughout the investigation. The
investigation continues with respect to individuals, some of whom are
indemnified by the Company for legal fees and related expenses.
Also on May 28, 1997 the Company announced that it had entered into an
agreement with the FDA providing for an independent audit of 20 of Copley's
ANDAs. The Company is cooperating fully with the FDA, and the independent audit
commenced in July and has been substantially completed. The FDA has agreed that
during this audit it will continue to review the Company's pending ANDAs, accept
new ANDAs from the Company and, where appropriate, approve Copley's ANDAs.
On November 3, 1997 the Company received notification that the Defense
Logistics Agency ("DLA") has proposed the Company be debarred from federal
government contracting and from directly or indirectly receiving the benefits of
certain federal assistance programs. The reason for the proposed debarment is
the Company's guilty plea described above. The Company has advised the DLA that
it believes the proposed debarment is not warranted. The Company's possibly
affected sales to the federal government are not material.
Marion Merrell Dow Inc. Bulk Diltiazem Lawsuit
In November of 1992, a lawsuit was filed against the Company by MMD and Tanabe
Seiyaku Co., Ltd. ("Tanabe") in the United States District Court for the
District of Massachusetts captioned Marion Merrell Dow Inc. and Tanabe Seiyaku
Co., Ltd. v. Copley Pharmaceutical, Inc. and Orion Corporation Fermion. MMD and
Tanabe allege that the Company and Orion Corporation Fermion ("Orion"), the
manufacturer of the Company's bulk diltiazem, are infringing a process patent
for one method of manufacturing bulk diltiazem. MMD and Tanabe have alleged that
they are the exclusive licensee and patentee, respectively, of such process
patent. The complaint seeks a permanent injunction and trebled unspecified
monetary damages. The Company has denied all liability in its answer to the
complaint. On May 10, 1993, the Court ordered the case administratively closed,
staying the case until further notice. On June 27, 1995, the parties jointly
moved the Court for an Order further staying the action until 30 days after
notification of completion of the related International Trade Commission
proceeding discussed below.
International Trade Commission Complaint
On February 25, 1993, the Company, together with a number of other off-patent
pharmaceutical manufacturers and certain chemical manufacturers, was named as a
respondent in a complaint filed by MMD and Tanabe before the United States
International Trade Commission ("the ITC") captioned Complaint of Marion Merrell
Dow Inc. and Tanabe Seiyaku Co., Ltd. Pursuant to Section 337 of the Tariff Act
of 1930. The complaint seeks an order (i) prohibiting the importation of, among
other things, the bulk diltiazem purchased by the Company from Orion, and (ii)
requiring the Company to immediately stop selling its current diltiazem product,
which incorporates bulk diltiazem supplied by Orion, based on the alleged
infringement by Orion of a process patent for one method of manufacturing bulk
diltiazem.
On June 1, 1995, the ITC issued its Final Determination ordering the
investigation terminated with the finding of no violation of Section 337, of no
patent infringement and taking no position on the issue of patent validity and
enforceability. On July 20, 1995, MMD and Tanabe filed an appeal with the United
States Court of Appeals for
<PAGE>
the Federal Circuit seeking review of the ITC's Final Determination. On March 7,
1997, the United States Court of Appeals for the Federal Circuit affirmed the
ITC's decision finding no infringement. A further appeal by MMD to the United
States Supreme Court was filed and in December 1997, the Supreme Court refused
to grant MMD's application to appeal.
Orion has agreed at its expense to defend the Company in this action and
the MMD Bulk Diltiazem Lawsuit discussed previously and to indemnify the Company
for any damages that might be assessed as a result of the Company's sale of
diltiazem obtained from Orion. Although the Company believes that these
complaints are without merit, that the Company and Orion have meritorious
defenses to these actions, and that the Company should prevail in these
lawsuits, there can be no assurance that the Company will prevail or that an
adverse outcome would not have a material adverse effect on the Company's
consolidated financial condition or results of operations.
SmithKline Beecham Lawsuit
In August 1997, the Company filed an ANDA for nabumetone which certified that
SmithKline Beecham Corporation's ("SB") patent relating to nabumetone was
invalid and unenforceable and that the Company was entitled to manufacture and
sell nabumetone prior to the December 13, 2002 expiration of SB's nabumetone
patent. As a result, on October 31, 1997 the Company was served with a summons
and complaint in a patent infringement action entitled SmithKline Beecham
Corporation and Beecham Group p.l.c. v. Copley Pharmaceutical, Inc. in the
United States District Court for the District of Massachusetts. In their action,
plaintiffs allege that because the Company seeks approval of its ANDA to engage
in the commercial manufacture, use and sale of nabumetone as claimed in their
patent before the patent's expiration, the Company has infringed their
nabumetone patent. Plaintiffs seek damages and an injunction against approval of
the Company's nabumetone ANDA and its sale of nabumetone prior to December 13,
2002. The manufacturer and supplier of the nabumetone that the Company has
designated for use in its ANDA has agreed to defend the Company in this action
and to indemnify the Company for any damages that might be assessed as a result
of the Company's sale of nabumetone obtained from the manufacturer. Although the
Company believes that this complaint is without merit and the Company has
meritorious defenses to these actions, there can be no assurance that the
Company will prevail or that an adverse outcome would not have a material
adverse effect on the Company's consolidated financial condition or results of
operation.
Other Legal Proceedings
The Company has $11.7 million of estimated recall related and legal contingency
reserves accrued at December 31, 1997. These reserves reflect the Company's
estimates of its exposure at December 31, 1997 in its various legal proceedings
described above. Actual settlements amounts may differ from amounts estimated.
In addition, the Company is from time to time subject to claims arising in the
ordinary course of business. While the outcome of the claims cannot be predicted
with certainty, management does not expect these matters to have a material
adverse effect on the results of operations and financial condition of the
Company.
M. Supplemental Cash Flow Information
The following provides additional information concerning disclosure of cash flow
activities:
YEAR ENDED Year ended Year ended
DECEMBER 31, December 31, December 31,
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Cash paid (received)
during the period for:
Interest $ 374 $ 241 $ 280
Income taxes (163) (5,062) (1,741)
- --------------------------------------------------------------------------------
N. Restructuring
In response to increasing pricing pressures and eroding margins, the Company
restructured its operations in the fourth quarter of 1996. The restructuring
included the consolidation of warehouse, manufacturing and office sites as well
as the write-off of underutilized and idle equipment and, to a lesser extent,
reductions in the labor force. The Company had a second reduction in labor force
during the second quarter of 1997.
<PAGE>
O. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS ENDED TOTAL
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
(In thousands, except per share data) 1997 1997 1997 1997 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $25,816 $25,500 $36,475 $33,692 $121,483
Gross profit 4,829 6,848 10,341 7,637 29,655
Recall related and litigation expenses 200 2,167 227 1,093 3,687
Net income (loss) (363) (1,514) 1,754 687 564
Net income (loss) per share $ (0.02) $ (0.08) $ 0.09 $ 0.04 $ 0.03
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three-month periods ended Total
March 31, June 30, September 30, December 31, December 31,
(In thousands, except per share data) 1996 1996 1996 1996 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $24,347 $35,311 $32,589 $ 31,214 $123,461
Gross profit 4,648 10,002 7,920 6,860 29,430
Recall related and litigation expenses 191 (255) 175 12,232(a) 12,343
Net income (loss) (3,029) 1,702 614 (11,960)(b) (12,673)
Net income (loss) per share $ (0.16) $ 0.09 $ 0.03 $ (0.63) $ (0.66)
- ------------------------------------------------------------------------------------------------------------------------
<FN>
Quarterly results are not an indication of future results.
(a) Includes an increase in contingency reserves reflecting changes in estimates
of the Company's exposure in its various outstanding legal proceedings.
(b) Includes $3.5 million ($2.1 million after taxes) of restructuring expenses.
</FN>
</TABLE>
Copley Pharmaceutical, Inc.
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Copley Pharmaceutical, Inc.:
We have audited the accompanying consolidated balance sheets of Copley
Pharmaceutical, Inc. and subsidiaries the ("Company") as of December 31, 1997
and 1996 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Copley
Pharmaceutical, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Boston, Massachusetts
January 29, 1998
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The consolidated financial statements and other financial information contained
in this annual report on Form 10-K were prepared by management in conformity
with generally accepted accounting principles. In preparing these consolidated
financial statements, reasonable estimates and judgments have been made when
necessary.
Management is responsible for establishing and maintaining a system of
internal control, designed to provide reasonable assurance as to the integrity
and reliability of the financial records. The concept of reasonable assurance
recognizes that there are inherent limitations in any control system and that
the cost of maintaining a control system should not exceed the expected benefits
to be derived therefrom. Management believes its system of internal control
effectively meets its objective of reliable financial reporting.
The Audit Committee of the Board of Directors is comprised of a majority
of non-employee directors and meets periodically with management and the
independent accountants to review and discuss audit findings and other financial
and accounting matters. The independent accountants have free access to the
Audit Committee, with and without management present, to discuss the results of
their audit work.
The Company's independent accountants are engaged to audit the Company's
consolidated financial statements, in accordance with generally accepted
auditing standards, for the purpose of expressing an opinion on the consolidated
financial statements.
Ken E. Starkweather
Vice President, Chief Financial Officer and Treasurer
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
There have been no changes in or disagreements with accountants on accounting or
financial disclosure matters during the Company's two most recent fiscal years.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information concerning directors and executive officers of the Company
required under this Item is incorporated herein by reference to the Company's
definitive proxy statement pursuant to Regulation 14A, to be filed with the
Commission not later than 120 days after the close of the Company's year ended
December 31, 1997, under the headings "Occupations of Directors and Executive
Officers" and "Management and Principal Shareholders."
ITEM 11: EXECUTIVE COMPENSATION
The information required under this Item is incorporated herein by reference to
the Company's definitive proxy statement pursuant to Regulation 14A, to be filed
with the Commission not later than 120 days after the close of the Company's
year ended December 31, 1997, under the heading "Compensation and Other
Information Concerning Directors and Officers."
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required under this Item is incorporated herein by reference to
the Company's definitive proxy statement pursuant to Regulation 14A, to be filed
with the Commission not later than 120 days after the close of the Company's
year ended December 31, 1997, under the heading "Management and Principal
Shareholders."
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item is incorporated herein by reference to
the Company's definitive proxy statement pursuant to Regulation 14A, to be filed
with the Commission not later than 120 days after the close of the Company's
year ended December 31, 1997, under the heading "Certain Relationships and
Related Transactions."
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a)1. Consolidated Financial Statements
For the following financial information included herein see Part II. Item 8
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
Report of Independent Accountants
2. Financial Statement Schedules
Financial statement schedules are not submitted because they are not applicable,
not required or because the information is included in the Consolidated
Financial Statements or Notes to the Consolidated Financial Statements.
3. List of Exhibits
Exhibit No. Description
- ------------------------------------------------------------------------------
3.1(d) Amended and Restated Certificate of Incorporation of the Company, as
amended.
3.2(a) Amended and Restated By-Laws of the Company. 10.3(a) Industrial Revenue
Bond Agreements executed by the Company dated July 15, 1989.
10.4(a) 1986 Incentive Stock Option Plan.
10.5(a) 1990 Stock Plan.
10.6(f) Amended and Restated 1992 Stock Plan.
10.7(a) 1992 Non-Employee Director Stock Plan.
l0.8(a) 1992 Employee Stock Purchase Plan.
10.9(a) Employee Stock Ownership Plan.
10.10(d) Profit Sharing and 401(k) Savings Plan, as amended.
10.11(a) Research & Development Cross License and Option to Purchase with Copley
R&D Limited Partnership II.
10.12(a) Form of Indemnity Agreement with Directors and Certain Officers.
10.13(b) Employment Agreement, dated as of October 8, 1993, between the Company
and Jane C.I. Hirsh.
10.14(b) Form of Employment Agreement between the Company and certain employees.
10.15(b) Acquisition Agreement, dated as of October 8, 1993, by and among the
Company, Hoechst Celanese and HCCP Acquisition Corporation.
10.16(d) Corporate Governance and Standstill Agreement, dated as of October 8,
1993, by and among the Company, Hoechst Celanese and HCCP Acquisition
Corporation, as amended.
10.17(b) Stock Purchase Agreement, dated as of October 8, 1993, by and among
Hoechst Celanese Corporation, HCCP Acquisition Corporation, Jane C.I.
Hirsh, Mark Hirsh, and Advent VI L.P., Advent Atlantic and Pacific
Limited Partnership, Advent Atlantic and Pacific II Limited
Partnership, Advent New York L.P., Advent Industrial II, L.P., TA
Venture Investors Limited Partnership, Chestnut III Limited Partnership
and Chestnut Capital International Partnership.
10.18(b) Product Agreement, dated as of October 8, 1993, between Hoechst
Celanese Corporation and the Company.
10.19(b) Confidentiality Agreement, dated as of September 10, 1993, between the
Company and Hoechst Celanese Corporation.
10.20(c) Amended and Restated Loan Agreement dated August 17, 1993 between
Copley Pharmaceutical, Inc. and The First National Bank of Boston.
10.21(e) Resignation Agreement dated December 22, 1994 between Anthony A.
Bonelli and Copley Pharmaceutical, Inc.
10.22(f) 1995 Non-Employee Director Stock Option Plan.
10.23(f) First Amendment to Amended and Restated Loan Agreement dated as of June
29, 1995 by and between the Company and the First National Bank of
Boston ("Bank of Boston").
10.24(f) First Amendment to Amended and Restated Promissory Note dated as of
June 29, 1995 by and between the Company and Bank of Boston.
10.25(f) First Amendment to Reimbursement Agreement dated as of June 29, 1995 by
and between the Company and Bank of Boston.
10.26(g) Agreement of Compromise and Settlement dated August 22, 1995.
10.27(g) Supplement to August 22, 1995 Agreement of Compromise and Settlement.
10.28(g) Escrow and Trust Agreement dated August 28, 1995.
10.29(g) Second Amendment to Amended and Restated Loan Agreement dated as of
August 30, 1995 by and between the Company and Bank of Boston.
10.30(h) Stipulation of Compromise and Settlement dated November 17, 1995.
10.31(h) Third Amendment to Amended and Restated Loan Agreement dated as of
March 25, 1996 by and between the Company and Bank of Boston.
10.32(i) Fourth Amendment to Amended and Restated Loan Agreement dated as of
July 31, 1996 by and between the Company and Bank of Boston.
<PAGE>
Exhibit No. Description
- ------------------------------------------------------------------------------
10.33(i) Third Amendment to Amended and Restated Promissory Note dated as of
July 31, 1996 by and between the Company and Bank of Boston.
10.34(j) Letter agreement between the Company and Hoechst Marion Roussel, Inc.
relating to the employment for Ken E. Starkweather.
10.35(j) Fifth Amendment to Amended and Restated Promissory Note dated as of
August 7, 1997 by and between the Company and Bank of Boston.
10.36(k)*Amended and Restated Glyburide Agreement effective January 1, 1997 by
and between Hoechst Marion Roussel, Inc. and Copley Pharmaceutical,
Inc.
10.37(k)*Amended and Restated Micronized Glyburide Agreement effective January
1, 1997 by and between Hoechst Marion Roussel, Inc. and Copley
Pharmaceutical, Inc.
10.38(k)*Pentoxifylline Agreement effective January 1, 1997 by and between
Hoechst Marion Roussel, Inc. and Copley Pharmaceutical, Inc.
10.39(l) Plea Agreement dated May 27, 1997.
10.40(l) Criminal information
10.41(l) Agreement between the Company and the Food and Drug Administration.
10.41(*) Nabumetone Agreement
21 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
(a) Previously filed as exhibits to the Company's Registration Statement on
Form S-1 (File No. 33-60324) filed on March 31, 1993 and incorporated
herein by reference.
(b) Previously filed as exhibits to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 dated October
14, 1993 and incorporated herein by reference.
(c) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended October 31, 1993 and
incorporated herein by reference.
(d) Previously filed as exhibits to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1994 and incorporated herein
by reference.
(e) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the eleven-month period ended December 31, 1994 and
incorporated herein by reference.
(f) Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995 and incorporated
herein by reference.
(g) Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q of the quarterly period ended September 30, 1995 and incorporated
herein by reference.
(h) Previously filed as exhibits to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 and incorporated
herein by reference.
(i) Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 and incorporated
herein by reference.
(j) Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997 and incorporated
herein by reference.
(k) Previously filed as exhibits to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997. * Confidential
treatment as to certain portions has been requested pursuant to Rule
24b-2 promulgated under the Securities Exchange Act of 1934, as
amended.
(l) Previously filed as exhibits to the Company's Current Report on Form
8-K dated May 28, 1997.
(b)Reports on Form 8-K
Form 8-K dated January 13, 1997 - Item 5: Other Events. The Company announced
that Kenneth N. Larsen has retired as President for health reasons but will
continue to serve on the Board of Directors and will remain its Chairman.
Form 8-K dated May 28, 1997 - Item 5: Other Events. The Company announced that
it entered into a plea agreement covering all issues investigated by the
Massachusetts U.S. Attorney during a nearly three-year-long review.
Form 8-K dated June 24, 1997 - Item 5: Other Events. The Company announced a
number of cost reduction initiatives and the acceptance of the Company's guilty
plea.
No other reports on Form 8-K were filed during the year ended December 31, 1997.
(c)Exhibits
The Company hereby files as exhibits to this Report on Form 10-K those exhibits
listed in Item 14(a)(3), above.
(d)Financial Statement Schedules
The Company hereby files as financial statement schedules to this Report on Form
10-K those financial statement schedules, if any, listed in Item 14(a)(2),
above.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Copley Pharmaceutical, Inc.
By:/s/ Kenneth N. Larsen
Kenneth N. Larsen
Chairman of the Board
(principal executive officer)
By:/s/ Ken E. Starkweather
Ken E. Starkweather
Vice President, Chief
Financial Officer and
Treasurer
Date: March 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signature Title(s) Date
- --------------------------------------------------------------------------------
/s/Kenneth N. Larsen Chairman of the Board and Director March 30, 1998
Kenneth N. Larsen (principal executive officer)
/s/Ken E. Starkweather Vice President, Chief Financial Officer March 30, 1998
Ken E. Starkweather and Treasurer
/s/Robert P. Cook Director March 30, 1998
Robert P. Cook
/s/Judith Fensterer Director March 30, 1998
Judith Fensterer
/s/Jane C.I. Hirsh President of Copley Pharmaceutical March 30, 1998
Jane C.I. Hirsh International, Inc. and Director
/s/William K. Hoskins Director March 30, 1998
William K. Hoskins
/s/Peter W. Ladell Director March 30, 1998
Peter W. Ladell
/s/Agnes Varis Director March 30, 1998
Agnes Varis
/s/Martin Zeiger Director March 30, 1998
Martin Zeiger
<PAGE>
Exhibit 10.13(b)
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made and entered into effective this 8th day
of October, 1993, by and between Jane C.I. Hirsh (the "Employee") and COPLEY
PHARMACEUTICAL, INC. (the "Company"), a Delaware corporation.
WITNESSETH:
----------
WHEREAS, Employee is considered a key employee of the Company; and
WHEREAS, Employee and the Company desire to enter into an Agreement to
provide for Employee's continuing employment with the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. EMPLOYMENT; DUTIES. During the term of the Employment Period (as
------------------
defined in Section 2), and subject to the terms and conditions hereof, the
Company shall employ the Employee as Chairperson of the Board and Chief
Executive Officer, and Employee shall perform such duties for the Company as are
incident to such position, together with such other duties, consistent with
Employee's knowledge, experience and position with the Company, as she may be
reasonably requested to perform by the Company from time to time in connection
with such employment.
Employee accepts such employment, and agrees to render the services
described herein and to devote her entire available business time, effort, skill
and attention to promote the best interests of the Company.
2. EMPLOYMENT PERIOD. The term of this Agreement shall automatically
-----------------
commence on the date on which at least a majority of the Company's outstanding
voting securities shall have been acquired pursuant to the transactions
contemplated by the Acquisition Agreement dated as of October 8, 1993, by and
among Hoechst Celanese Corporation, HCCP Acquisition Corporation and the
Company, and shall end on the date five (5) years after such date, unless sooner
terminated pursuant to Section 5 hereof. Thereafter, this Agreement shall
automatically be renewed for successive periods of one (1) year, unless the
Company shall have given the Employee not less than six (6) months' written
notice of non-renewal and shall pay the Employee the Severance Payments (as
defined below) that would be payable if Employee's employment were terminated in
accordance with Section 5.4 hereof. The term "Employment Period" shall mean the
period of the Employee's employment with the Company hereunder.
3. SALARY. As compensation for the services to be rendered by Employee
------
during the Employment Period, the Company shall pay Employee the base annual
salary of $385,000 ("Base Salary"), payable periodically consistent with the
Company's normal payroll practices,
<PAGE>
Exhibit 10.13(b)
less such deductions and amounts to be withheld therefrom as may be required
under applicable law. The Base Salary may be increased from time to time as
agreed upon by the Company and Employee; provided, that in the sole discretion
of the Board of Directors, Employee shall be entitled to receive inflation and
merit increases determined in accordance with past practices.
4. OTHER BENEFITS AND TERMS OF EMPLOYMENT. During the Employment Period,
--------------------------------------
the following benefits and other terms of employment shall also apply:
(A) EXPENSES. The Company shall reimburse Employee for customary and
--------
necessary expenses reasonably incurred by Employee in the course of performing
those duties which are incident to her position or which she has been requested
to perform by the Company, all in accordance with the Company's normal
reimbursement policies.
(B) BONUS. Employee shall receive such quarterly, annual or other
-----
bonuses as may, from time to time, be approved by the Company's Board of
Directors, based upon various factors reviewed by the Board and based on the
achievement of the objectives determined by the Board. Such bonuses are
entirely within the discretion of the Board. Employee shall also participate in
such other incentive compensation programs, if any, as the Company may establish
for key executive employees. In addition to the foregoing, the Company will
continue to maintain an annual bonus pool the size of which shall be determined
in accordance with past practice. Employee shall be eligible to receive a bonus
from such bonus pool as determined by the Company's Board of Directors in its
discretion.
(C) OPTIONS. At the discretion of the Board of Directors, Employee
-------
shall be eligible to receive periodic grants of stock options to purchase shares
of the Company's Common Stock. Any options to be granted shall be subject to an
appropriate option agreement in the form normally used by the Company with
respect to its key employees.
(D) INSURANCE, OTHER BENEFITS. Employee shall participate (at the
-------------------------
Company's expense) in employee health, hospitalization, disability, group-term
life, vacation, and other benefit programs on the same basis as that of other
Company executives. In addition, Employee shall be entitled to such other
benefits as may be generally maintained or provided by the Company for the
benefit of other key executive employees.
5. TERMINATION.
-----------
5.1 GENERAL. The Employment Period shall terminate prior to its
-------
scheduled expiration set forth in Section 2 upon the earliest of the following:
(i) the Employee's death, (ii) a determination that Employee has become
disabled, as defined in Section 5.2, (iii) termination "for cause" under the
provisions of Section 5.3, or (iv) termination without cause as provided in
Section 5.4.
5.2 DISABILITY. Employee shall be regarded as "disabled" for
----------
purposes of this Agreement if she has been unable to render the services
required of her hereunder, in a manner consistent with past practice, for a
period of four (4) consecutive months or for any period in the
2
<PAGE>
Exhibit 10.13(b)
aggregate of eight (8) months in any twelve (12) month period because of a
serious and continuing health impairment, which impairment will most likely
result in Employee's continued inability to render the services required of her
hereunder in a manner consistent with past practices; provided, however, that
thirty (30) days' prior notice of termination for disability shall be given to
Employee
If the Employee dies during the Employment Period (without regard to the
Company's right to terminate this Agreement thereupon), or if the Company
exercises its right to terminate the Employee under this Section 5.2, then in
each such case the Employee or her estate shall be entitled to the same payments
and other benefits as are provided in the event of termination pursuant to
Section 5.4 (including without limitation the acceleration of Employee's stock
options as provided in Section 5.4). In the case of death or disability, at the
Company's option the salary and benefit payment obligations of the Company may
be funded by insurance paid for by the Company.
In the event that there should be any dispute between Employee and the
Company as to whether Employee is "disabled" within the meaning of this
Agreement or as to whether Employee has recovered from any such disability, such
matter shall be conclusively determined by the written report of a physician
acceptable to the Board and Employee, who shall set forth in his report the
nature and seriousness of the impairment suffered by Employee and the likely
effect of such impairment on Employee's future ability to render the services
required hereunder. Employee agrees to submit to examination by any such
physician to the extent reasonably requested by the Board for the purpose of
ascertaining the extent of Employee's disability or recovery therefrom and the
parties agree that any determination with respect to Employee's disability may
be conclusively resolved in the sole judgment of the Board if Employee should
fail to comply with any reasonable request by the Board to submit to such an
examination.
5.3 FOR CAUSE. The Company may terminate the Employment Period and
---------
discharge Employee for cause upon giving thirty (30) days' (five (5) days in the
case of subparagraph (iv) below) prior written notice to Employee of such
termination. Regardless of any broader definition of "cause" which might
otherwise apply under applicable law, the term "for cause" as used herein shall
be defined to include only one or more of the following grounds: (i)
misappropriation by Employee of any material amounts of money or other assets or
property (tangible or intangible) of the Company; (ii) the Employee's willful
refusal to perform reasonable assignments given to Employee commensurate with
such Employee's status, functions or responsibilities as a key employee;
provided, that (a) such refusal is material and repetitive, and (b) the Employee
shall have been given reasonable notice and explanation of each refusal, and
reasonable opportunity to cure such refusal, and no cure has been effected
within a reasonable time after notice; (iii) conviction of Employee of a felony;
or (iv) a breach of any of the provisions of Section 6 hereof.
5.4 AT THE ELECTION OF THE COMPANY FOR REASONS OTHER THAN FOR CAUSE.
---------------------------------------------------------------
The Company may terminate the Employee's employment hereunder at any time during
the term of this Agreement without cause by giving ninety (90) days' advance
written notice to the Employee of an election to terminate.
3
<PAGE>
Exhibit 10.13(b)
In the event the Company exercises its right to terminate the Employee
under this Section 5.4, the Company agrees to pay the Employee a lump sum
severance or termination payment of (i) the greater of (a) the Employee's
aggregate Base Salary for the remainder of the Employment Period from the date
of termination, and (b) two (2) year's Base Salary at the then current rate,
(ii) medical and other health insurance benefits for such two years; and (iii)
the pro rata portion of any bonus to which the Employee is otherwise entitled
(the "Severance Payments"). Such Severance Payments shall be payable on the
Employee's last date of employment hereunder and shall be subject to all
applicable federal and state withholding and other taxes. In the event of a
termination under this Section 5.4, the Company may retain the Employee as a
consultant on terms mutually agreeable between the Company and the Employee.
In addition, notwithstanding anything to the contrary contained in any
stock option agreement between the Employee and the Company, if the Company
exercises its right to terminate the Employee under this Section 5.4, then all
stock options then held by the Employee shall automatically accelerate and
become fully exercisable as of the date on which the Employee received notice of
termination. Such stock options shall remain fully exercisable until the close
of business on the 60th day after the last date of the Employee's employment
with the Company hereunder. The Company shall take any and all actions
necessary to effect the provisions of this paragraph.
It shall be deemed to be a termination "without cause" if the Employee's
responsibilities and executive authority are reduced or diluted in any material
respect without the Employee's consent (which reduction or dilution is not
corrected by the Company within 30 days following written notification by
Employee to the Company that Employee intends to terminate her employment for
such reason), or the Employee is relocated to another Company office or facility
more than 25 miles from Canton, Massachusetts without the Employee's consent.
In the event that Employee would, except for the remainder of this Section,
be subject to a tax pursuant to Section 4999 of the Internal Revenue Code of
1986, as amended, (the "Code") or any successor provision that may be in effect,
as a result of "parachute payments" (as that term is defined in Section
280G(b)(2)(A) and (d)(3) of the Code) made pursuant to this Agreement, or a
deduction would not be allowed to the Company for all or any part of such
payments by reason of Section 280G(a) of the Code, or any successor provision
that may be in effect, such payments shall be reduced, eliminated, or postponed
in such amounts as are required to reduce the aggregate "present value" (as that
term is defined in Section 280G(d)(4) of the Code) of such payments to one
dollar less than an amount equal to three times Employee's "base amount," (as
that term is defined in Section 280G(b)(3)(a) and (d)(1) and (2) of the Code) to
the end that Employee is not subject to tax pursuant to such Section 4999 and no
deduction is disallowed by reason of such Section 280G(a). To achieve such
required reduction in aggregate present value, Employee in her sole discretion
shall determine what item(s) constituting the parachute payments shall be
reduced, eliminated or postponed, the amount of each such reduction, elimination
or postponement, and the period of each such postponement. To enable Employee
to make such determine, the Company shall be required to provide Employee with
such information as is reasonably necessary for such determination.
4
<PAGE>
Exhibit 10.13(b)
Prior to the making of any payment under this Section, either party may
request a determination as to whether such payment would constitute a "parachute
payment," and, if so, the amount by which the payment must be reduced in
accordance herewith. If such a determination is requested, it shall be made
promptly, at the Company's expense, by independent tax counsel selected by the
Employee and approved by the Company (which approval shall not unreasonably be
withheld), and such determination shall be conclusive and binding on the
parties. The Company shall provide such information as such counsel may
reasonably request, and such counsel may engage accountants or other experts at
the Company's expense to the extent that they deem necessary or advisable to
enable them to reach a determination.
5.5 EFFECT OF TERMINATION. Notwithstanding any termination of the
---------------------
Employment Period, the Company shall promptly pay Employee any amounts due to
Employee with respect to all accrued but unpaid salary and accrued but unused
vacation time to the date of termination. If Employee is deceased, such
payments shall be made to such individual or entity as Employee may have
designated in writing submitted to the Company or, in the absence of such
written designation, to Employee's estate.
6. COVENANTS OF THE EMPLOYEE. In consideration of the Employee's
-------------------------
continued employment with the Company, Employee hereby agrees that:
6.1 NONCOMPETITION COVENANT. During the Employment Period and for
-----------------------
one additional year thereafter the Employee will not, whether alone or as a
partner, officer, director, consultant, principal, distributor, representative,
agent, employee or stockholder of any company or other commercial enterprise,
engage in any business or other commercial activity which is competitive with
the products, services being marketed, distributed or developed by the Company.
The foregoing prohibition shall not prevent employment or engagement by any
company or business organization not engaged in such business as long as the
activities of any such employment or engagement, in any capacity, do not involve
work on matters directly or indirectly related to the products, services or
strategy being developed, manufactured or marketed by the Company. Ownership of
less than five percent (5%) of the outstanding shares of a company whose stock
is publicly traded shall not be a violation of this provision. If the Employee
is terminated without "cause" (as defined herein), the provisions of this
Section 6.1 shall not apply unless the Company shall have promptly made the
payments required to be made by it pursuant to Section 5.4 hereof.
6.2 NONSOLICITATION. During the Employment Period and for one
---------------
additional year thereafter the Employee will not, directly or indirectly, either
for herself or for any other commercial enterprise, solicit, divert or take away
or attempt to solicit, divert or take away, any of the Company's customers,
business or prospective customers. For purposes of this Agreement, "prospective
customers" shall include those customers who have been solicited by the Company
within one year before the date Employee's employment with the Company
terminated. Furthermore, during such period, the Employee will not solicit any
employee of the Company for the employment of such Company employee by any
commercial enterprise, other than for the Company, nor recruit, solicit, attempt
to recruit or solicit, hire, or attempt to hire any
5
<PAGE>
Exhibit 10.13(b)
such Company employee for any other commercial enterprise, whether or not such
enterprise may be a competitor of the Company.
6.3 NONDISCLOSURE OBLIGATION. The Employee will not at any time,
------------------------
whether during or after the term of this Agreement, and regardless of any early
termination thereof, for any reason whatsoever (other than to promote and
advance the business of the Company), reveal to any person or entity (both
commercial and non-commercial) any of the trade secrets, proprietary rights or
confidential business information concerning the Company, including but not
limited to its research and development activities, product designs, prototypes,
technical specifications, processes, formulae, inventions, methods and
memoranda, know-how and know-how, marketing plans and strategies, pricing and
costing policies, customer and supplier lists and accounts, and business,
finances or financial information of the Company so far as they have come and
may come to the Employee's knowledge, except as may be required in the ordinary
course of performing her duties as an Employee. These restrictions shall not
apply to: (i) information that may be disclosed generally or is in the public
domain through no default of the Employee; (ii) information received from a
third party who has not violated its own confidentiality obligation to the
Company; (iii) information approved for release by written authorization of the
Company; or (iv) information that may be required by law or an order of any
court, agency or proceeding to be disclosed. The Employee shall keep secret all
matters of such nature entrusted to her and shall not use or disclose any such
information in any manner which causes loss to the Company.
6.4 ASSIGNMENT OF INVENTIONS. It is expressly understood and agreed
------------------------
that any and all right, title and interest of the Employee in any inventions,
discoveries and patent rights conceived or developed by the Employee during the
term of this Agreement (and thereafter if Employee remains an employee of the
Company) which relate to or arise out of her employment services rendered to the
Company are "works for hire" and are hereby assigned to the Company by the
Employee and shall be the sole and exclusive property of the Company.
6.5 REFORMATION OF AGREEMENT. In the event that any of the covenants
------------------------
contained in this Section 6 may be found by a court of competent jurisdiction to
be invalid or unenforceable as against public policy or otherwise, the parties
hereto expressly authorize such court to exercise its discretion in reforming
any such covenant to the end that Employee shall be subject to the greatest
extent permissible to confidentiality and noncompetition covenants that are
reasonable under the circumstances, enforceable by the Company, and consistent
with the Company's legitimate interests (acknowledged by the parties) in
protecting the Company's goodwill associated with the experience, skills, and
loyalty of Employee and with protecting the value of the business and assets of
the Company.
6.6 INJUNCTIVE RELIEF. In the event of a breach or threatened
-----------------
breach by Employee of any of the covenants contained in this Section 6, Employee
agrees that the Company shall be entitled to injunctive relief in a court of
appropriate jurisdiction to remedy any such breach or threatened breach.
6
<PAGE>
Exhibit 10.13(b)
7. INDEMNIFICATION. The Company hereby agrees to indemnify Employee to
---------------
the maximum extent permitted by applicable law against all costs, charges, and
expenses incurred or sustained by her in connection with any action, suit, or
other proceeding to which she may be made a party by reason of her being an
employee of the Company or by reason of any action taken or omitted to be taken
in good faith by Employee in such capacity, to the extent that Employee's
actions or omissions are consistent with and not in breach of the provisions of
this Agreement. The provisions of this Section 7 shall not be interpreted to
limit any right to indemnification that the Employee may have under the
Certificate of Incorporation or By-laws of the Company, by contract or otherwise
or under applicable law.
8. NONASSIGNABILITY. This Employment Agreement may not be assigned by
----------------
either Company or Employee, except that the Company may assign its rights under
this Agreement to any affiliated corporation by means of assignment, merger, or
otherwise; and no such assignment shall impair the rights or obligations of the
parties as provided herein.
9. MISCELLANEOUS.
-------------
9.1 NOTICES. All notices and other communications required or
-------
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, sent by overnight courier service or
facsimile transmission, or dispatched by certified mail to the parties at the
following addresses or to such other address for a party as such party may have
designated to the other in a prior notice given in accordance herewith:
(a) If to the Company, to:
Copley Pharmaceutical, Inc.
25 John Road
Canton, MA 02021
Attn: President
Fax: (617) 821-4068
with a copy of such notice to:
Leslie E. Davis, Esq.
Testa, Hurwitz & Thibeault
53 State Street
Boston, MA 02109
Fax: (617) 248-7100
(b) If to Employee, to:
Jane C.I. Hirsh
c/o Copley Pharmaceutical, Inc.
25 John Road
Canton, MA 02021
7
<PAGE>
Exhibit 10.13(b)
9.2 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
----------------
understanding of the parties hereto concerning the subject matter hereof and
supersedes any prior understandings and agreements relating to the terms of the
Employee's employment by the Company.
9.3 AMENDMENTS; WAIVERS. This Agreement may be amended, modified,
-------------------
superseded, or cancelled and the terms or covenants hereof may be waived, only
by a written instrument specifically referring to this Agreement and executed by
both of the parties hereto, or, in the case of a waiver, by the party entitled
to the benefit of such provision. The failure of the Company at any time or
from time to time to require performance of any of Employee's obligations under
this Agreement shall in no manner affect the Company's right to enforce any
provisions of this Agreement at a subsequent time; and the waiver by the Company
of any right arising out of any breach shall not be construed as a waiver of any
right arising out of any subsequent breach.
9.4 SEVERABILITY. If any provision of this Agreement, or the application
------------
thereof to any person or circumstance, should, for any reason and to any extent,
be invalid or unenforceable, the remainder of this Agreement shall not be
affected thereby.
9.5 GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts made and to be performed entirely within such Commonwealth.
9.6 HEADINGS. The section headings contained in this Agreement are
--------
intended solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
Exhibit 10.13(b)
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first written above, effective as of such date.
EMPLOYEE:
Jane C.I. Hirsh
COPLEY PHARMACEUTICAL, INC.
By:
Title:
9
<PAGE>
EXHIBIT 10.18(B)
----------------
PRODUCT AGREEMENT
-----------------
Product Agreement (the "Agreement") dated as of October 8, 1993 by and
between Copley Pharmaceutical, Inc., a Delaware corporation ("Buyer"), and
Hoechst Celanese Corporation, a Delaware corporation ("HC").
RECITALS
--------
WHEREAS, Buyer, HC and HCCP Acquisition Corporation, a Delaware corporation
and wholly-owned subsidiary of HC ("Sub"), are concurrently herewith entering
into an Acquisition Agreement, dated as of the date hereof (the "Acquisition
Agreement"), which provides, upon the terms and subject to the conditions
thereof, for the acquisition by Sub of shares (the "Shares") of the outstanding
common stock, $.01 par value per share, of Buyer through a tender offer (the
"Offer") for the Shares; and
WHEREAS, as a condition to the willingness of Buyer to enter into the
Acquisition Agreement, Buyer has requested that HC and Sub enter into this
Agreement to establish certain intercompany relationships prior to, but
effective upon, the successful completion of the Offer.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in accordance with the Acquisition
Agreement, the parties hereto agree as follows:
ARTICLE I
---------
Supply Relationship
-------------------
1.1 Supply. HC shall, and shall cause Hoechst Celanese Bulk Analgesics &
------
Acylation Chemicals Division ("BAAC") to, sell to Buyer the quantity Buyer
orders from time to time (subject to availability) of all present and future
Products, as hereinafter defined, of BAAC, except to the extent prohibited by
agreements existing on the date hereof with unaffiliated third parties. Prior
to buying any Product from other suppliers, buyer shall first inquire of HC as
to price and availability of the desired quantity of Product, and will buy from
HC or BAAC if the terms and conditions, including available quantities of
Product, taken as a whole, are more favorable to Buyer than those available from
another supplier. Buyer, and not HC or BAAC, shall supply the Products (after
purchase from HC or BAAC) to any joint venture, collaborative arrangement,
partnership, association, subsidiary or any other Person in which Buyer has at
least a 25% equity or ownership interest (collectively "Buyer Supply
Affiliates"). The term "Products" shall mean bulk active ingredients
manufactured from time to time by BAAC. "Product" means any one of the
Products. Buyer shall use Products only for research and development and/or
incorporation into products intended for sale and shall resell the Products in
bulk only to Buyer Supply Affiliates for the same purposes.
<PAGE>
-2-
1.2 Price
-----
(a) Price. The parties shall negotiate the price to be paid by Buyer for
-----
each Product, but in no case shall such price be a price higher than the lowest
price charged any other customer for equivalent quality and quantity.
Reasonable shipping and insurance charges shall be paid by HC and added to such
price.
(b) Price Increases. Unless otherwise negotiated, HC shall promptly
---------------
notify Buyer in writing of any material price increase at least three (3) months
in advance of any such price increase. Any such price increase shall only apply
to shipments made after the date of such price increase provided such shipments
were not reasonably requested for delivery prior to the date of such price
increase.
(c) Forecasts and Purchase Orders. Forecasts and purchase orders shall be
-----------------------------
in accordance with normal industry standards. Forecasts shall be nonbinding.
HC shall use its best efforts to supply Product in the quantities and on the
dates set forth in the purchase order for such Product. This subsection (c)
applies to Products which did not originate pursuant to Section 1.5.
(d) Payment. Payment by Buyer for Products supplied by HC or its
-------
Affiliates hereunder shall be in United States dollars and made within ninety
(90) days after the date of invoice. Products shall be invoiced no sooner than
the date of shipment to Buyer or its designee.
1.3 Third Party Products. If requested by Buyer, HC shall cause BAAC to
--------------------
use its best efforts to assist Buyer in locating third party suppliers of
materials which are not Products and negotiating the best available terms for
such materials. This includes BAAC contacting other companies within the
Hoechst Group including Roussel Uclaf.
1.4 Continuity of Supply. Once BAAC has commenced supply of a Product, HC
--------------------
shall cause BAAC to continue manufacturing of such Product so long as Buyer has
need of such supply for its product line provided such manufacture is legally
permitted and economically feasible. If HC or BAAC determines that such
manufacture is no longer economically feasible, it will give Buyer a minimum of
18 months notice of termination.
1.5 Synthesis. Buyer may, from time to time, determine that it requires a
---------
supply of bulk active ingredients which are not at that time Products. At
Buyer's request, HC shall or will cause BAAC to designate appropriate research
and development specialists and other developmental and manufacturing personnel
as it deems appropriate and necessary to meet with representatives of Buyer to
discuss the material to be synthesized and the feasibility of such synthesis and
to determine the anticipated costs thereof. The HC representatives, together
with the Buyer representatives, shall constitute the "Product Selection
Committee." Upon a determination of technical and economic feasibility to each
party of HC or BAAC manufacturing the material for Buyer, the Product Selection
Committee shall establish production guidelines, and a timetable for developing
and manufacturing the new material. The Product Selection Committee shall also
determine forecasting, purchase order and delivery guidelines for each new
material and the priority of each project. HC agrees to use its best efforts to
synthesize such
<PAGE>
-3-
materials for Buyer as promptly as possible and to allocate appropriate
resources to such synthesis.
If the new material is available to Buyer in the commercial market at the
time HC or BAAC have obtained all approvals necessary to ship and sell such new
material, HC shall be entitled to sell such material to other customers and
shall charge Buyer a price no higher than the lowest price charged to any other
customer. If the new material is not generally available in the market, neither
HC nor BAAC shall sell such material without Buyer's agreement to any other
customer and the price charged Buyer shall be negotiated.
1.6 Specifications. All Products supplied hereunder shall meet the
--------------
specifications (including impurity profile) for that Product agreed to by the
Parties. Each shipment shall be accompanied by a Certificate of Analysis.
1.7 HC Warranties. HC warrants that, at the time of shipment, each
-------------
Product supplied by it hereunder (i) shall meet the applicable Product
Specifications (which shall include an impurity profile); (ii) shall not be
adulterated or misbranded within the meaning of the Food, Drug and Cosmetic Act
(the "Act"), or any applicable laws in which the definitions of adulteration and
misbranding are substantially the same as those contained in the Act, as the Act
and such laws are constituted and effective at the time of delivery of such
Product to Buyer or its designee; (iii) shall be manufactured and supplied in
accordance with GMPs and all other applicable laws, rules and governmental
regulations; and (iv) shall not violate any patent, trade secret or other
proprietary right of any third party.
HC's WARRANTIES SET FORTH IN THIS SECTION 1.7 ARE ITS EXCLUSIVE WARRANTIES
TO BUYER WITH RESPECT TO THE PRODUCTS, AND ARE GIVEN AND ACCEPTED IN LIEU OF ANY
AND ALL OTHER WARRANTIES, GUARANTEES, CONDITIONS AND REPRESENTATIONS, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Subject to Section 1.8 and with respect to the delivery to Buyer of Product
or bulk active ingredients being supplied under Section 1.5, IN NO EVENT WILL
BUYERS DAMAGES OR OTHER RECOVERY FROM HC IN ANY CAUSE OF ACTION, WHETHER BASED
ON CONTRACT, TORT OR ANY OTHER THEORY, EXCEED THE PRICE PAID BY BUYER FOR THE
SPECIFIC GOODS AS TO WHICH THE CLAIM IS MADE; and HC SHALL NOT BE LIABLE, AND
BUYER WAIVES ALL CLAIMS AGAINST HC, FOR PROSPECTIVE PROFITS OR SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES BASED UPON NEGLIGENCE, BREACH OF
WARRANTY, STRICT LIABILITY IN TORT OR ANY OTHER CAUSE OR ACTION. HC will not be
liable to Buyer for any contribution to or indemnity against all or any part of
any loss, damage or injury to persons or property to the extent it results from
Buyer's handling, storage, transportation, resale or use of the Products in
manufacturing processes, or in combination with other substances or otherwise.
1.8 HC Indemnity. HC shall indemnify and hold harmless Buyer from and
------------
against any and all costs, expenses, damages (except as set forth above),
judgments, liabilities (including
<PAGE>
-4-
attorneys' fees) incurred by or rendered against Buyer or its Affiliates
(collectively, "Loss and Expense") to the extent arising from any claim made or
suit brought as a result of a breach by HC of its warranties under Section 1.7.
Buyer shall give prompt written notice of any such claim or suit, and shall
permit HC to undertake the defense thereof, at HC's expense. Buyer shall
cooperate in such defense, to the extent reasonably requested by HC, at HC's
expense. Buyer shall have the right to participate in such defense at its own
expense. In any claim made or suit brought, for which Buyer seeks
indemnification under this Section 1.8, Buyer shall not settle, offer to settle,
or admit liability or damages without the prior written consent of HC. HC shall
not settle, offer to settle or admit liability or damages without the prior
written consent of Buyer if such actions would impose any limitations on the
business of Buyer.
Buyer shall similarly indemnify HC with equal limitations as apply to HC
indemnification of Buyer for product liability and other claims to the extent
arising out of its manufacture and marketing of products incorporating Products,
or bulk active ingredients supplied under Section 1.5.
ARTICLE II
----------
Managed Care Market Development and Sales
-----------------------------------------
2.1 Organization. Buyer and HC's Affiliate, Hoechst-Roussel
------------
Pharmaceuticals Incorporated ("HRPI") have agreed to form a managed care market
development and sales organization ("Organization"). The purpose of this
Organization is to maximize the sales and profits of Buyer and HC and HRPI in
the managed care market by being a preferred supplier of services and high
quality products.
Each of HC and Buyer intends to contribute its particular business
expertise to the Organization. HRPI has an established managed care market
development and sales organization. Buyer also has expertise in this area.
Buyer and HRPI have complementary product lines of generic and specialty
products. Buyer and HRPI intend to cooperate to share knowledge and expertise
in areas such as regulatory affairs and market conditions.
Within thirty (30) days of the effective date hereof, HC shall cause HRPI
to, and Buyer shall appoint an equal number of representatives to a committee
which shall determine:
(i) the form and structure of the Organization;
(ii) the therapeutic areas to be managed by the Organization;
(iii) the current and future product portfolio necessary for managed care
market segments. These may include new ANDA's, insourcing of multi-source
products, new dosage forms of existing products via modified NDA's and patent
protected products.
<PAGE>
-5-
(iv) specific market segments to be managed by the Organization including:
* Indemnity Plans
* Hospital Sales
* All HMO's - Staff, IPA's, etc.
* All Pharmacy Benefit Companies
* Mail Order
* Large Buyers that may Result from Clinton Health Proposals
* Long Term Care
* PPO's with Pharmacy Benefit Management
* Other segments or individual accounts which may not currently fall
under traditional managed care segments will be addressed as market
conditions change
* HRPI and Buyer agree to work exclusively through the Organization
in these specific segments. Each retains the right to market and
contract independently to those market segments which do not fall
under the auspices of the Organization.
(v) resource and supply allocation and cost sharing;
(vi) labelling and Organization market identity matters; and
(vii) contract and pricing strategy.
2.2 Product Access.
--------------
(a) Buyer shall be the exclusive generic arm of HC and its affiliate,
HRPI. If HC or HRPI determines that they desire to "genericize" any HRPI product
as it comes off patent or if such products are or are about to become subject to
multi-source competition, HC shall cause HRPI to grant Buyer the exclusive right
from HRPI to market and sell and the exclusive right to manufacture (if
manufacture is agreed to by the parties) the "genericized" product.
HRPI may authorize Buyer to prelaunch products based on HRPI's assessment
of market conditions. Terms and conditions are to be negotiated on a case-by-
case basis. On the Effective Date, Buyer shall have the right to pre-launch,
market and sell glyburide (Diabeta(R)). Buyer and HRPI will immediately
commence negotiating an agreement relating to a generic Diabeta(R) (glyburide).
<PAGE>
-6-
If Buyer determines that it is not interest in or capable of "genericizing"
an HRPI product, Buyer will so notify HC in sufficient time to enable HC to make
other arrangements.
(b) HRPI will negotiate to allow Buyer to develop new dosage forms of
existing HRPI products via modified NDA's.
2.3 Managed Care Services Joint Venture. HC and Buyer agreed to consider
-----------------------------------
forming a managed healthcare preferred benefit services joint venture.
ARTICLE III
-----------
Services
--------
3.1 Provisions of Services. HC, BACC and HRPI shall make the following
----------------------
services available to Buyer on an as available basis, provided that Buyer shall
have priority over persons which are not affiliates of HC:
(a) access to specialized analytical instrumentation, e.g., NMR, GC Mass
spec, x-ray diffraction and atomic absorption to assist in ANDA submissions.
(b) access to HC purchasing agreements which may be beneficial in
purchasing software, hardware, production equipment, etc.
(c) access to HC distribution network, e.g., warehousing, EDI technology,
transportation, etc.
(d) access to HRPI's excess manufacturing capacity when useful to Buyer,
including all production systems.
All such services will be charged to Buyer at the same full cost charged to
HC divisions and other Affiliates.
Buyer shall make available to HRPI its excess manufacturing capacity when
available and useful to HRPI. Such capacity will be charged for on a full cost
basis.
ARTICLE IV
----------
Over the Counter
----------------
The parties agree to negotiate in good faith to develop joint ventures in
private label OTC markets.
ARTICLE V
---------
Term and Termination
--------------------
5.1 Commencement. This Agreement shall commence on the Effective Date.
------------
<PAGE>
-7-
5.2 Termination. This Agreement shall terminate:
-----------
(i) After five years from the Effective Date, upon at least twelve (12)
months notice by either party; provided, however, that Article I may not be
terminated by HC as to any Product which Buyer is then incorporating in its then
product line, has incorporated in a filed ANDA or has been selected by the
Product Selection Committee. If HC would like to cease supply, the parties will
work together to obtain an alternate source of supply for Buyer so as to permit
Buyer to continue its product sales on an uninterrupted basis.
(ii) Immediately, on any date set by mutual agreement of the parties;
(iii) Subject to Section 6.3 below, if any party breaches any of its
material obligations hereunder or any of its representations and warranties
herein in any material respect which is not cured within ten (10) days from the
date of written notice delivered to the defaulting party in the case of a
payment default, and within thirty (30) days from the date of such notice in all
other cases, upon written notice of termination from the non-defaulting party;
provided, however, that if a breach of a material obligation is not of the type
that can reasonably be cured within such grace period, the defaulting party
shall have an additional period (not to exceed sixty (60) days) in which to cure
such breach, provided that the defaulting party notifies the non-defaulting
party in writing that it is exercising its right to the additional grace period,
explains why such breach cannot be cured within the existing grace period and
promptly commences diligent action to cure such breach;
Upon a termination or expiration of this Agreement by either party hereto
for any reason, all obligations under this Agreement shall cease, except that
Sections 1.7, 1.8, 6.2, and 6.3 shall survive; and Buyer and HC and its
Affiliates shall be and remain liable to pay, each to the other, any and all
sums then due and payable hereunder.
ARTICLE VI
----------
Miscellaneous
-------------
6.1 Force Majeure.
-------------
(a) Event of Force Majeure. Neither party shall be responsible or liable
----------------------
to the other hereunder, for the failure or delay in the performance of this
Agreement except Buyer's obligation to pay for delivered product, or both
parties obligations to pay for performed Services, due wholly or partly to any
cause not in its control or not avoidable by reasonable diligence. The
following, while not an exclusive listing, will be considered not to be within a
party's control or avoidable by reasonable diligence: war, fire, accident or
other casualty, act of God, labor controversies, court decrees, inability to use
the full capacity of plants or facilities as a result of governmental action,
machinery malfunctions or breakdowns, and inability without litigation or the
payment of penalties or unreasonable prices or the acceptance of unreasonable
terms and conditions, to obtain fuel, power, labor, containers, transportation
facilities, or materials necessary to produce the Products. In the event of the
applicability of this Section 6.1, the party
<PAGE>
-8-
failing or delaying performance shall use its commercially reasonable best
efforts to eliminate, cure and overcome any of such cause and resume the
performance of its obligations.
(b) Notification. Upon the occurrence of an event of force majeure, the
------------
party failing or delaying performance shall promptly notify the other party, in
writing, setting forth the nature of the occurrence, its expected duration and
how such party's performance is affected. The failing or delaying party shall
resume performance of its obligations hereunder as soon as practicable after the
force majeure event ceases.
6.2 Proprietary Information. The parties hereto agree that, unless
-----------------------
otherwise required by law or court order, no Proprietary Information (as defined
below) shall be disclosed during the Term and for a period of two years
thereafter to any party other than those employees and agents of the parties
having a need to know such information to enable the parties to perform their
obligations hereunder. The parties hereto further agree not to use any
Proprietary Information of the other party to the detriment of such other party.
For purposes of this Agreement, "Proprietary Information" shall mean all
confidential or proprietary data or information obtained from another party
hereto, except any portion thereof that (i) was already known to the party
receiving the same, as evidenced by its written records at the time or receipt
thereof; (ii) is disclosed to the party receiving the same, after such receipt,
by a third person who has a right to make such disclosure without violating any
duties owed to the other party hereto; (iii) is or becomes part of the public
domain through no fault of the party receiving the same; or (iv) is subsequently
developed or unrecovered by or on behalf of the receiving party without the
benefit or use, directly or indirectly, of such data or information.
6.3 Dispute Resolution. The parties agree to in good faith explore the
------------------
use of Alternate Dispute Resolution techniques prior to commencing litigation.
6.4 Notices. Any notice or communication given pursuant hereto by any
-------
party to any other party shall be in writing and shall be sufficient in all
respects if delivered in person or upon receipt after being mailed by
registered, certified or express mail, postage prepaid, return receipt
requested, addressed as follows:
If to Buyer to:
Copley Pharmaceutical, Inc.
25 John Street
Canton, Massachusetts 02021
Attention: Steven N. Tannenbaum
With a copy to:
Testa, Hurwitz & Thibeault
125 High Street
Boston, Massachusetts 02110
Attention: Leslie E. Davis
<PAGE>
-9-
If to HC or any of its affiliates, to:
Hoechst Celanese Corporation
Route 202-206 Box 2500
Somerville, New Jersey 08876
Attention: Karen Weiner
or to such other address as either party hereto may hereafter in writing notify
the other party hereto.
6.5 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
-------------
AND GOVERNED BY THE INTERNAL LAWS, AND NOT THE LAWS OF CONFLICTS OR CHOICE OF
LAWS, OF THE STATE OF DELAWARE.
6.6 Modifications, Amendments and Waivers. Except as otherwise provided
-------------------------------------
herein, provisions of this Agreement may be modified, amended or waived only by
a written document specifically identifying this Agreement and signed by the
party hereto against whom enforcement of such modification, amendment or waiver
is sought. Without limitation, to the extent the terms and conditions of this
Agreement conflict with the terms and conditions on any Purchase Order, shipping
order form, bill of lading, receipt or the like, the terms and conditions of
this Agreement shall be controlling.
6.7 Assignment. This Agreement shall not be assignable nor is the
----------
performance of the duties hereunder delegable without the express written
consent of the non-assigning or non-delegating parties, as the case may be,
whose consent will not be unreasonably withheld.
6.8 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto and supersedes all prior agreements and
understandings, both written and oral, and all concurrent oral agreements and
understandings with respect to the subject matter hereof.
6.9 Headings. The titles or Article or section headings of the various
--------
provisions hereof are intended solely for convenience and ease of reference and
shall not in any manner amplify, limit or modify or otherwise be used in the
interpretation of any of said provisions.
6.10 No Waiver. The failure of any party hereto at any time to require
---------
performance by any other party of any provision of this Agreement shall not
affect the right of such party to require performance of that provision, and any
waiver by either party of any breach of any provision of this Agreement shall
not be construed as a waiver of any continuing or succeeding breach of such
provision, a waiver of the provision itself, or a waiver of any right under this
Agreement.
6.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Agreement.
<PAGE>
-10-
6.12 Drafter. Neither party hereto, nor its respective counsel, shall be
-------
deemed the drafter of this Agreement, and all provisions of this Agreement shall
be construed in accordance with their fair meaning, and not strictly for or
against either party hereto.
6.13 Definitions. "Person" means and includes an individual, a
-----------
corporation, a partnership, a joint venture, a trust, and an unincorporated
organization. An "Affiliate" of a specified Person is a Person that directly or
indirectly is controlled by the Person specified. "Effective Date" shall mean
the date on which at least a majority of Buyer's outstanding voting securities
(calculated on a fully diluted basis) shall have been acquired by HC or Sub
pursuant to the Acquisition Agreement dated as of the date hereof.
6.14 Further Assurances. Each party hereto shall, and shall cause its
------------------
Affiliates to, use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all other things necessary, proper or
advisable (including the execution and delivery of other things necessary,
proper or advisable (including the execution and delivery of other documents or
instruments) to carry out the provisions of, or to more effectively consummate
the transactions contemplated by, this Agreement.
6.15 Severability. If any one or more of the provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions hereof shall
not in any way be affected or impaired hereby. In the event any provisions
shall be held invalid, illegal or unenforceable, the parties shall use their
best efforts to substitute a valid, legal and enforceable provision, which
insofar as practical, implements the purpose hereof and of such invalid, illegal
or unenforceable provisions.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Hoechst Celanese Corporation
By: /s/ Harry R. Benz
----------------------------------
Name: Harry R. Benz
Title: Senior Vice President - Finance,
Chief Financial Officer and Director
Copley Pharmaceutical, Inc.
By: /s/ Jane C.I. Hirsh
----------------------------------
Name: Jane C.I. Hirsh
Title: Chairperson of the Board, Chief
Executive Officer and President
<PAGE>
EXHIBIT 10.20(C)
----------------
================================================================================
AMENDED AND RESTATED LOAN AGREEMENT
BETWEEN
COPLEY PHARMACEUTICAL, INC.
AND
THE FIRST NATIONAL BANK OF BOSTON
AUGUST 17, 1993
================================================================================
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
(S)1 DEFINITIONS AND RULES OF INTERPRETATION............................. 1
(S)1.1 Definitions.................................................... 1
(S)1.2 Rules of Interpretation........................................ 8
(S)2 THE LOAN FACILITY................................................... 8
(S)2.1 The Loan....................................................... 8
(S)2.2 The Line of Credit Note........................................ 8
(S)2.3 Interest on the Loan........................................... 9
(S)2.4 Conversion Options............................................. 9
(S)3 REPAYMENT OF THE LOAN............................................... 10
(S)3.1 Maturity....................................................... 10
(S)3.2 Mandatory Payments of Principal of the Loan.................... 10
(S)3.3 Optional Prepayment of Loan.................................... 10
(S)4 CERTAIN GENERAL PROVISIONS.......................................... 10
(S)4.1 Funds for Payments............................................. 10
(S)4.2 Computations................................................... 11
(S)4.3 Additional Costs, Etc.......................................... 11
(S)4.4 Capital Adequacy............................................... 12
(S)4.5 Certificate.................................................... 12
(S)4.6 Indemnification for Losses Upon Optional Prepayment............ 12
(S)4.7 Interest on Overdue Amounts.................................... 13
(S)4.8 Concerning Liability of the Borrower........................... 13
(S)5 SECURITY............................................................ 14
(S)6 REPRESENTATIONS AND WARRANTIES...................................... 14
(S)6.1 Authority: Etc................................................. 14
(S)6.2 Governmental Approvals......................................... 15
(S)6.3 Title to Property.............................................. 15
(S)6.4 Financial Statements........................................... 15
(S)6.5 No Material Changes, Etc....................................... 16
(S)6.6 Franchises, Patents, Copyrights, Etc........................... 16
(S)6.7 Litigation..................................................... 16
(S)6.8 No Materially Adverse Contracts, Etc........................... 16
(S)6.9 Compliance with other Instruments, Laws, Etc................... 17
(S)6.10 Tax Status.................................................... 17
(S)6.11 No Event of Default........................................... 17
(S)6.12 Holding Company and Investment Company Acts................... 17
(S)6.13 Absence of UCC Financing Statements, Etc...................... 17
(S)6.14 Certain Transactions.......................................... 17
(S)6.15 Employee Benefit Plans; Multiemiployer Plans;
Guaranteed Pension Plans.......................................... 18
(S)6.16 Regulations U and X........................................... 18
(S)6.17 Environmental Compliance...................................... 18
(S)6.18 Loan Documents................................................ 19
(S)6.19 Fiscal Year................................................... 19
(S)6.20 Subsidiaries.................................................. 19
(S)7 AFFIRMATIVE COVENANTS OF THE BORROWER............................... 19
(S)7.1 Punctual Payment............................................... 19
(S)7.2 Maintenance of Office.......................................... 19
-i-
<PAGE>
(S)7.3 Records and Accounts........................................... 19
(S)7.4 Financial Statements, Certificates and Information............. 19
(S)7.5 Notices........................................................ 20
(S)7.6 Existence; Maintenance of Properties........................... 21
(S)7.7 Insurance...................................................... 21
(S)7.8 Taxes.......................................................... 22
(S)7.9 Inspection of Properties and Books............................. 22
(S)7.10 Compliance with Laws, Contracts, Licenses, and Permits........ 22
(S)7.11 Further Assurances............................................ 22
(S)7.12 Bank Accounts................................................. 23
(S)8 CERTAIN NEGATIVE COVENANTS OF THE BORROWER.......................... 23
(S)8.1 Restrictions on Indebtedness................................... 23
(S)8.2 Restrictions on Liens, Etc..................................... 24
(S)8.3 Restrictions on Investments.................................... 24
(S)8.4 Merger, Consolidation, Sale of Assets.......................... 25
(S)8.5 Compliance with Environmental Laws............................. 25
(S)8.6 Distributions.................................................. 25
(S)8.7 Fiscal Year.................................................... 25
(S)9 FINANCIAL COVENANTS OF THE BORROWER................................. 25
(S)9.1 Ratio of Net Operating Cash Flow to Debt Service Charges....... 26
(S)9.2 Ratio of Total Liabilities to Tangible Net Worth............... 26
(S)9.3 Minimum Tangible Net Worth..................................... 26
(S)10 CLOSING CONDITIONS................................................. 26
(S)10.1 Loan Documents................................................ 26
(S)10.2 Certified Copies of Organization Documents.................... 26
(S)10.3 By-laws; Resolutions.......................................... 26
(S)10.4 Incumbency Certificate; Authorized Signers.................... 26
(S)10.5 Certificates of Insurance..................................... 27
(S)10.6 Opinion of Counsel............................................ 27
(S)10.7 Representations True; No Event of Default..................... 27
(S)10.8 No Legal Impediment........................................... 27
(S)10.9 Governmental Regulation....................................... 27
(S)10.10 Proceedings and Documents................................... 27
(S)11 EVENTS OF DEFAULT; ACCELERATION; ETC............................... 28
(S)11.1 Events of Default and Acceleration............................ 28
(S)11.2 Remedies...................................................... 29
(S)12 SETOFF............................................................. 30
(S)13 EXPENSES; FEES..................................................... 30
(S)14 INDEMNIFICATION.................................................... 31
(S)15 SURVIVAL OF COVENANTS, ETC......................................... 31
(S)16 ASSIGNMENT; PARTICIPATIONS; ETC.................................... 31
(S)16.1 Assignment by the Bank........................................ 31
(S)16.2 Participations................................................ 32
(S)16.3 Disclosure.................................................... 32
(S)16.4 Pledge by Bank................................................ 32
(S)16.5 No Assignment by Borrower..................................... 32
(S)17 NOTICES, ETC....................................................... 32
(S)18 GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE................. 33
-ii-
<PAGE>
(S)19 HEADINGS........................................................... 33
(S)20 COUNTERPARTS....................................................... 33
(S)21 ENTIRE AGREEMENT, ETC.............................................. 33
(S)22 WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS..................... 34
(S)23 CONSENTS, AMENDMENTS, WAIVERS, ETC................................. 34
(S)24 SEVERABILITY....................................................... 34
-iii-
<PAGE>
EXHIBITS
--------
A. Form of Note
B. Form of Closing Certificate
C. Form of Opinion of Counsel as to Organization and Loan Documents
D. Form of Compliance Certificate
-iv-
<PAGE>
SCHEDULES
---------
6.3 Balance Sheet Exceptions
6.7 Litigation
6.13 UCC Financing Statements, etc.
6.14 Insider Transactions
6.17 Environmental Compliance
6.20 Subsidiaries
8.1 Outstanding Indebtedness
8.3 Outstanding Investments
-v-
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
-----------------------------------
This AMENDED AND RESTATED LOAN AGREEMENT is made as of August 17, 1993, by
and among COPLEY PHARMACEUTICAL, INC., a Delaware corporation ("Copley" or
"Borrower") and THE FIRST NATIONAL BANK OF BOSTON, a national banking
association (the "Bank").
WHEREAS, the Borrower and the Bank entered into a loan arrangement pursuant
to which the Bank loaned to the Borrower $2,500,000.00 (the "Line of Credit") as
evidenced by a promissory note from the Borrower to the Bank and a Loan
Agreement between the Borrower and the Bank (the "Loan Agreement") , each dated
December 16, 1988, the terms of which have been amended by several amendments to
the Loan Agreement and increases in the Line of Credit; and
WHEREAS, the Borrower and the Bank entered into a second loan arrangement
pursuant to which the Bank issued a letter of credit and acted as Trustee of
those certain Flexible Mode Industrial Development Revenue Bonds ("Copley
Pharmaceutical, Inc. 1989 Series") which bonds were issued by the Massachusetts
Industrial Finance Agency as of July 15, 1989, and the Loan and Trust Agreement
relating thereto was amended as of July 31, 1990 (the "Bond Transaction"); and
WHEREAS, the loan arrangements referenced in the two foregoing paragraphs
are hereinafter collectively referred to as the "Prior Loan Arrangements"; and
WHEREAS, the Borrower and the Bank wish to amend, restate and integrate the
Loan Agreement in its entirety (as so amended, restated and integrated, the
"Agreement"), and the Borrower and the Bank agree that upon the execution and
delivery of the Agreement, the Loan Agreement shall remain in force and effect
only as amended and restated herein; and
NOW, THEREFORE, the parties hereto agree as follows:
(S)1. DEFINITIONS AND RULES OF INTERPRETATION.
---------------------------------------
(S)1.1 Definitions. The following terms shall have the meanings set
-----------
forth in this (S)1 or elsewhere in the provisions of this Agreement referred to
below:
Account and Account Receivable. All rights to payment for goods
------- ------------------
sold, all sums of money or other proceeds due or becoming due thereon, all
instruments pertaining thereto, all guaranties and security therefor, and all
goods giving rise thereto and the rights pertaining to such goods, including the
right of stoppage in transit, and all related insurance.
Balance Sheet Date. January 31, 1993.
------------------
Bank. The First National Bank of Boston, and its successors and
----
assigns.
<PAGE>
-2-
Base Accounts. Accounts receivable of the Borrower as to which the
-------------
Borrower has furnished to the Bank information as provided by (S)7.4(d). If and
when a Base Account exists by virtue of constituting proceeds of Base Inventory,
the inventory giving rise to the Base Account automatically loses its status as
Base Inventory.
Base Inventory. Inventory as to which the Borrower has acquired title
--------------
and the Borrower has furnished to the Bank information as required by (S)7.4(d).
Inventory immediately loses the status of Base Inventory if and when the
Borrower sells it, otherwise passes title to it or consumes it.
Base Rate. The annual rate of interest announced from time to time by
---------
the Bank at its head office in Boston, Massachusetts as its "base rate".
Base Rate Loan. All or any portion of the Loan bearing interest
--------------
calculated by reference to the Base Rate.
Borrower. Copley Pharmaceutical, Inc., a Delaware corporation.
--------
Business Day. Any day on which banking institutions in Boston,
------------
Massachusetts, are open for the transaction of banking business.
CERCLA. See (S)6.17.
------
Closing Date. The first date on which the conditions set forth in
------------
(S)10 have been satisfied and the Line of Credit loan arrangement is to be
converted to the Loan, which date shall not be later than August 3l, 1993.
Code. The Internal Revenue Code of 1986, as amended and in effect
----
from time to time.
Consolidated or consolidated. With reference to any term defined
----------------------------
herein, shall mean that term as applied to the accounts of the Borrower and any
Subsidiaries, consolidated in accordance with generally accepted accounting
principles.
Consolidated Net Income (or Deficit). The consolidated net income (or
------------------------------------
deficit) of the Borrower and any Subsidiaries, after deduction of all expenses,
taxes, and other proper charges, determined in accordance with generally
accepted accounting principles, after eliminating therefrom all extraordinary
items of income.
Consolidated Total Assets. All assets of the Borrower and any
-------------------------
Subsidiaries determined on a consolidated basis in accordance with generally
accepted accounting principles.
Consolidated Total Liabilities. All liabilities of the Borrower and
------------------------------
any Subsidiaries determined on a consolidated basis, in accordance with
generally accepted accounting principles and all Indebtedness of the Borrower
and any Subsidiaries, whether or not so classified.
<PAGE>
-3-
Conversion Date. The date on which all or any portion of the Loan is
---------------
converted into or continued as a Loan of a specified type.
Conversion Request. A notice given by the Borrower to the Bank of the
------------------
Borrower's election to convert or continue a Loan in accordance with (S)2.4.
Debt Service Charges. For any fiscal quarter of the Borrower, the sum
--------------------
of (i) the expenses of the Borrower for such period for interest payable with
respect to the Obligations (including the current position thereof) and for fees
payable hereunder, under the other Loan Documents or in connection with the
Obligations, plus (ii) current maturities of the Obligations for such period, in
----
each case determined in accordance with generally accepted accounting
principles.
Default. See (S)11.1.
-------
Distribution. The payment of any distribution of cash to the
------------
stockholders of the Borrower, or any other distribution on or in respect of any
shares of stockholder interests of the Borrower.
Dollars or $. Dollars in lawful currency of the United States of
------------
America.
Employee Benefit Plan. Any employee benefit plan within the meaning
---------------------
of (S)3(3) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
Environmental Laws. See (S)6.17(a).
------------------
ERISA. The Employee Retirement Income Security Act of 1974, as
-----
amended and in effect from time to time.
ERISA Affiliate. Any person which is treated as a single employer
---------------
with the Borrower under (S)414 of the Code.
Event of Default. See (S)11.1.
----------------
Existing Loans. The Line of Credit and the Bond Transaction Loan
--------------
Arrangements.
generally accepted accounting principles. (a) When used in (S)9,
----------------------------------------
whether directly or indirectly through reference to a capitalized term used
therein, means (i) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and their
predecessors, in effect for the fiscal year ended on the Balance Sheet Date and
(ii) to the extent consistent with such principles, the accounting practices of
the Borrower reflected in its financial statements for the year ended on the
Balance Sheet Date and (b) when used in general, other than as provided above,
means principles that are (i) consistent with the principles promulgated or
adopted by the Financing Accounting Standards Board and its predecessors, as in
effect from time to time and (ii) consistently applied with past financial
<PAGE>
-4-
statements of the Borrower adopting the same principles; provided that in each
--------
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would, insofar as the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied. All financial matters of the Borrower and its
Subsidiaries in this Agreement shall be considered, calculated and reported in
accordance with generally accepted accounting principles, on an accrual basis,
except as otherwise specified.
Guaranteed Pension Plan. Any employee pension benefit plan within the
-----------------------
meaning of (S)3(2) of ERISA maintained or contributed to by the Borrowers or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Hazardous Substances. See (S)6.17(b).
--------------------
Indebtedness. All obligations, contingent and otherwise, that in
------------
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as liabilities, or to which reference should be
made by footnotes thereto, including in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge, or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase indebtedness, or to assure the
owner of indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit.
Interest Payment Date. As to any Base Rate Loan or LIBOR Loan, the
---------------------
last date of the calendar month which includes the Conversion Date thereof.
Interest Period. With respect to each Loan, (a) initially, the period
---------------
commencing on the initial date of borrowing such Loan pursuant to this
Agreement, or the Conversion Date of any such Loan and ending on the last day of
one of the periods set forth below, as selected by the Borrower, respectively,
in a Loan Request or a Conversion Request (i) for any Base Rate Loan, the last
day of the calendar month; and (ii) for any LIBOR Loan, 30, 60, 90, or 180 days;
and (b) thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Loan and ending on the last day of one of the
periods set forth above, as selected by the Borrower in a Conversion Request;
provided that all of the foregoing provisions relating to Interest Periods are
- --------
subject to the following:
(a) if any Interest Period with respect to a Base Rate Loan or a
LIBOR Loan would end on a day that is not a Business Day, that Interest
Period shall end on the next succeeding Business Day;
<PAGE>
-5-
(b) if the Borrower shall fail to give notice as provided in
(S)2.4, the Borrower shall be deemed to have requested a conversion of the
affected LIBOR Loan to a Base Rate Loan on the last day of the then current
Interest Period with respect thereto;
(c) the Borrower may not select any Interest Period relating to
any LIBOR Loan that would extend beyond the Maturity Date.
Inventory. Goods, merchandise and other personal property, now owned
---------
or hereafter acquired by the Borrower, which are held for sale or are raw
materials, work in process, or materials used or consumed or are to be used or
consumed in the Borrower's business.
Investments. All expenditures made and all liabilities incurred
-----------
(contingently or otherwise) for the acquisition of stock or Indebtedness of, or
for loans, advances, capital contributions or transfers of property to, or in
respect of any guaranties (or other commitments as described under
Indebtedness), or obligations or, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital (but only by repurchase, redemption,
retirements, repayment, liquidating dividend or liquidating distribution); (d)
there shall not be deducted in respect of any Investment any amounts received as
earnings on such Investment, whether as dividends, interest or otherwise, except
that accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
LIBOR. London Inter Bank Offered Rate, as determined by the Bank from
-----
time to time pursuant to such rate as announced in London, England.
LIBOR Loan. All or any portion of the Loan bearing interest
----------
calculated by reference to LIBOR.
Loan. The Line of Credit Loan made by the Bank to the Borrower and
----
restated herein, in the stated principal amount on the Restatement Date of
$7,500,000.00, subject to the Borrower's Maximum Availability, and each portion
of such loan comprising a Base Rent Loan or a LIBOR Loan.
Loan Documents. This Agreement, the Note and all other documents
--------------
related thereto and delivered with reference thereto.
Loan Request. A request by Borrower to borrow funds pursuant to this
------------
Agreement.
Maturity Date. September 30, 1995.
-------------
<PAGE>
-6-
Maximum Availability. The lesser of (i) $7,500,000.00 or (ii) the sum
--------------------
of (a) 50% of the net security value of Base Inventory plus (b) 80% of the net
outstanding amount of the Base Accounts not exceeding (1) ninety (90) days after
the earlier of billing or shipment of the underlying goods, or (ii) sixty (60)
days past due.
Multiemployer Plan. Any multiemployer plan within the meaning of
------------------
(S)3(37) of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate.
Net Operating Cash Flow shall mean the Net Operating Income for the
-----------------------
Borrower for any fiscal quarter plus depreciation and amortization for such
quarter and less taxes actually paid and capital expenditures accrued during
such quarter.
Net Operating Income shall mean the net pre-tax earnings of the
--------------------
Borrower for any fiscal quarter, without including in such calculation (i)
extraordinary items such as litigation judgments and (ii) the payment of
interest on any obligations.
net outstanding amount of Base Accounts. The net amount of Base
---------------------------------------
Accounts outstanding, after eliminating from the aggregate amount of such
outstanding accounts those accounts past due under the original terms of sale,
and deducting from the aggregate full amount of the remaining Base Accounts all
payments, adjustments and credits applicable thereon or considered by the Bank,
applying the Bank's standard credit checking procedures, difficult to collect or
uncollectible by reason of return, rejection, repossession, loss or damage of or
to the merchandise giving rise thereto, a merchandise or other dispute,
insolvency of the account debtor, or any other reason, all as determined by the
Bank in its reasonable discretion, which determination shall be final and
binding upon the Borrower.
net security value of Base Inventory. The net value of Base Inventory
------------------------------------
taking into account charges and liens of all kinds against the Base Inventory,
changes in the market value thereof, and transportation, processing and handling
charges affecting the value thereof, all as determined by the Bank in its
reasonable discretion, which determination shall be final and binding upon the
Borrower.
Note. The Line of Credit Note.
----
Obligations. All indebtedness, obligations and liabilities of the
-----------
Borrower to the Bank under this Agreement or any of the other Loan Documents or
in respect of the Loan or the Note or other instruments at any time evidencing
any thereof, or with respect to any other loan documents to the Bank whether
existing on the date of this Agreement or arising or incurred hereafter, direct
or indirect, joint or several, absolute or contingent, matured or unmatured,
liquidated or unliquidated, secured or unsecured, arising by contract, operation
of law or otherwise.
outstanding. With respect to the Loan, the aggregate unpaid principal
-----------
thereof as of any date of determination.
<PAGE>
-7-
PBGC. The Pension Benefit Guaranty Corporation created by (S)4002 of
----
ERISA And any successor entity or entities having similar responsibilities.
Person. Any individual, corporation, partnership, trust,
------
unincorporated association, business, or other legal entity, and any Government
or any governmental agency or political subdivision thereof.
Prior Loan Arrangements. See Preamble.
-----------------------
Real Estate. All real property at any time owned or leased (as lessee
-----------
or sublessee) by the Borrower or any Subsidiary, including without limitation,
the land and improvements thereon located at 25 John Road, Canton, Massachusetts
(the "Real Property").
Record. The grid attached to the Note, or the continuation of such
------
grid, or any other similar record, including computer records, maintained by the
Bank with respect to the Loan referred to in such Note.
Reemployment Period. See 4.6 (a).
-------------------
Restatement Date. The date on which all conditions precedent to the
----------------
effectiveness of this Agreement have been satisfied and the Loan Agreement is
restated as provided herein.
Subsidiary. Any corporation, association, partnership, trust, or
----------
other business entity of which the designated parent shall at any time own
directly or indirectly through a Subsidiary or Subsidiaries at least a majority
(by number of votes or controlling interests) of the outstanding Voting
Interests.
Tangible Net Worth. The aggregate book value of Consolidated Total
------------------
Assets (after deduction therefrom of all applicable reserves and allowances)
minus (a) Consolidated Total Liabilities, (b) any write-up of any such assets
occurring after the date hereof, and (c) all intangibles other than software
capitalized on the Borrower's books as a tangible asset, including without
limitation goodwill, leasehold improvements, patents, trademarks and the like.
Type. As to the Loan or portion thereof, its nature as a Base Rate
----
Loan or a LIBOR Loan.
Voting Interests. Stock or similar ownership interests, of any class
----------------
or classes (however designated) , the holders of which are at the time entitled,
as such holders, (a) to vote for the election of a majority of the directors (or
persons performing similar functions) of the corporation, association,
partnership, trust or other business entity involved, or (b) to control, manage,
or conduct the business of the corporation, partnership, association, trust or
other business entity involved.
<PAGE>
-8-
(S)1.2 Rules of Interpretation.
-----------------------
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to time in
accordance with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification
to such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by generally accepted accounting principles applied on a
consistent basis by the accounting entity to which they refer.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by generally
accepted accounting principles, which terms are defined in the Uniform
Commercial Code as in effect in Massachusetts, have the meanings assigned to
them therein.
(h) Reference to a particular "(S)" refers to that section of this
Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words like import
shall refer to this Agreement as a whole and not to any particular section or
subdivision of this Agreement.
(S)2 THE LOAN FACILITY.
-----------------
(S)2.1 The Loan. The Bank and the Borrower acknowledge and agree that
--------
as of July 31, 1993 the aggregate amount of the Line of Credit Loan was
$[____________________]. The Bank and the Borrower further acknowledge and agree
that on and as of the Closing Date (i) the Loan shall be a revolving committed
line of credit loan from the Bank and (ii) all of the obligations of the
Borrower with respect to the Loan shall be subject to and governed by the terms
of this Agreement, the Note and the other Loan Documents. The Loan shall be due
and payable on the Maturity Date.
(S)2.2 The Line of Credit Note. The Loan shall be evidenced by a
-----------------------
restated promissory note of the Borrower in substantially the form of Exhibit A
hereto (the "Note") , dated as of the Closing Date and completed with
appropriate insertions. The Note shall be payable to the order of the Bank in
the stated principal amount of $7,500,000.00, but shall be subject to the
Maximum Availability as set forth herein. The Borrower irrevocably authorizes
the Bank to make or cause to be made, at the time of (i) receipt of any payment
of principal on, and (ii) any advance of
<PAGE>
-9-
principal with respect to, the Note, an appropriate notation on the Record
reflecting the receipt of such payment and advance of such principal. The
outstanding amount of the Loan set forth on the Record shall be prima facie
evidence of the principal amount owing and unpaid to the Bank, but the failure
to record, or any error in so recording, any such amount on the Record shall not
limit or otherwise affect the obligations of the Borrower hereunder or under the
Note to make payments of principal of or interest on the Note when due.
Notwithstanding the stated principal amount of the Note, the principal balance
outstanding from time to time of the Note shall not exceed the Borrower's
Maximum Availability. Subject to the terms of this Agreement, the Borrower may
borrow, pay and re-borrow against the Note until the Maturity Date.
(S)2.3 Interest on the Loan.
--------------------
The Loan shall bear interest during each Interest Period at the following
rates.
(a) To the extent that all or any portion of the Loan bears
interest during such Interest Period at a rate based on the Base Rate, the Loan
or such portion shall bear interest during such Interest Period at the rate per
annum equal to the Base Rate.
(b) To the extent that all or any portion of the Loan bears
interest during such Interest Period at a rate based on LIBOR, the Loan or such
portion shall bear interest during such Interest Period at the rate per annum
equal to LIBOR at the inception of such Interest Period plus two percent (2.0%).
(c) The Borrower promises to pay interest on the outstanding
principal amount of the Loan at the rates and for the Interest Periods specified
herein, in arrears on each Interest Payment Date applicable to each Interest
Period.
(S)2.4 Conversion Options.
------------------
(a) The Borrower may elect from time to time to convert the Loan or
a portion thereof to a Loan of another Type, provided that (i) with respect to
any such conversion of the Loan or a portion thereof to a LIBOR Loan, the
Borrower shall give the Bank at least three (3) Business Days' prior written
notice of such election; (ii) with respect to any such conversion of a LIBOR
Loan into a Base Rate Loan such conversion shall only be made on the last day of
the Interest Period with respect thereto; and (iii) neither the Loan nor any
portion thereof may be converted into a LIBOR Loan when any Default or Event of
Default has occurred and is continuing. All or any portion of the outstanding
Loan of any Type may be converted as provided herein, provided that partial
conversions shall be in an aggregate principal amount of $1,000,000 or any
integral multiple of $100,000 in excess thereof. Each Conversion Request
relating to the conversion of a Base Rate Loan to a LIBOR Loan shall be
irrevocable by the Borrower.
(b) In the event that the Borrower does not notify the Bank of its
election hereunder with respect to the Loan or any portion thereof, the Loan or
such portion shall be automatically converted to a Base Rate Loan at the end of
the applicable Interest Period.
<PAGE>
-10-
(S)3 REPAYMENT OF THE LOAN.
---------------------
(S)3.1 Maturity. The Borrower promises to pay on the Maturity Date, and
--------
there shall become absolutely due and payable on the Maturity Date, all
principal of the Loan outstanding on such date, together with any and all
accrued and unpaid interest thereon.
(S)3.2 Mandatory Payments of Principal of the Loan. The Borrower shall
-------------------------------------------
pay in full all principal of the Loan, together with any and all accrued and
unpaid interest thereon, at least one time in each calendar year and no
borrowing shall be allowed against the Note for a period of thirty (30)
consecutive days thereafter.
(S)3.3 Optional Prepayment of Loan. The Borrower shall have the right
---------------------------
at any time to prepay the Note on or before the Maturity Date, as a whole, or in
part, without premium or penalty (except as provided in (S)4.7), provided that
(a) no portion of the Loan bearing interest at LIBOR may be prepaid pursuant to
this (S)3.3 except on the last day of the Interest Period relating thereto and
(b) any amount prepaid shall be accompanied by accrued interest on the principal
repaid to the date of payment. Any amount repaid with respect to the Loan may be
reborrowed, pursuant however to the terms of this Agreement, but in no event
after the Maturity Date.
(S)4 CERTAIN GENERAL PROVISIONS.
--------------------------
(S)4.1 Funds for Payments.
------------------
(a) All payments of principal, interest and any other amounts due
hereunder or under any of the other Loan Documents shall be made to the Bank at
its head office at 100 Federal Street, Boston, Massachusetts 02110, or at such
other location that the Bank may from time to time designate, in each case in
immediately available funds.
(b) All payments by the Borrower due hereunder and under any of the
other Loan Documents shall be made without setoff or counterclaim and free and
clear of, and without deduction for, any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any jurisdiction
or any political subdivision thereof, or taxing or other authority therein,
unless the Borrower is compelled by law to make such deduction or withholding.
If any such obligation is imposed upon the Borrower with respect to any amount
payable by it hereunder or under any of the other Loan Documents, the Borrower
will pay to the Bank on the date upon which such amount is due and payable
hereunder or under such other Loan Document, such additional amount in Dollars
as shall be necessary to enable the Bank to receive the same net amount which
the Bank would have received on such due date had no such obligation been
imposed upon the Borrower. The Borrower will deliver promptly to the Bank
certificates or other valid vouchers for all taxes or other charges deducted
from or paid with respect to payments made by the Borrower hereunder or under
such other Loan Documents.
(S)4.2 Computations. All computations of interest on the Loan and of
------------
other fees to the extent applicable shall be based on a 360-day year and paid
for the actual number of days elapsed. Whenever a payment hereunder or under any
of the other Loan Documents becomes
<PAGE>
-11-
due on a day that is not a Business Day, the due date for such payment shall be
extended to the next succeeding Business Day, and interest shall accrue during
such extension.
(S)4.3 Additional Costs, Etc. If any present or future applicable law,
---------------------
which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Bank by any central bank or other fiscal, monetary or
other authority (whether or not having the force of law), shall:
(a) subject the Bank to any tax, levy, impost, duty, charge, fee,
deduction or withholding of any nature with respect to this Agreement, the
other Loan Documents or the Loan (other than taxes based upon or measured
by the income or profits of the Bank), or
(b) materially change the basis of taxation (except for changes in
taxes on income or profits) of payments to the Bank of the principal of or
the interest on the Loan or any other amounts payable to the Bank under
this Agreement or the other Loan Documents, or
(c) impose or increase or render applicable (other than to the
extent specifically provided for elsewhere in this Agreement) any special
deposit, reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held
by, or deposits in or for the account of, or loans by, or commitments of,
any office of the Bank, or
(d) impose on the Bank any other conditions or requirements with
respect to this Agreement, the other Loan Documents, the Loan or any class
of loans or commitments of which the Loan forms a part;
and the result of any of the foregoing is in each case, beyond that which exists
on the date hereof or of which the Bank has received notice of the date hereof,
(i) to increase the cost to the Bank of making, funding,
issuing, renewing, extending or maintaining the Loan, or
(ii) to reduce the amount of principal, interest or other
amount payable to the Bank hereunder on account of the Loan, or
(iii) to require the Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment or
foregone interest or other sum is calculated by reference to the gross
amount of any sum receivable or deemed received by the Bank from the
Borrower hereunder,
then, and in each such case, the Borrower will, upon demand made by the Bank at
any time and from time to time and as often as the occasion therefor may arise
within 180 days after the
<PAGE>
-12-
occurrence of the event giving rise thereto, pay to the Bank such additional
amounts as will be sufficient to compensate the Bank for such additional cost,
reduction, payment or foregoing interest or other sum incurred since the date of
such event.
(S)4.4 Capital Adequacy. If any present or future law, governmental
----------------
rule, regulation, policy, guideline or directive (whether or not having the
force of law) or the interpretation thereof by a court or governmental authority
with appropriate jurisdiction of which the Bank has no actual knowledge as of
the date of this Agreement affects the amount of capital required or expected to
be maintained by the Bank or any corporation controlling the Bank and the Bank
determines that the amount of capital required to be maintained by it is
increased by or based upon the existence of the Loan made or deemed to be made
pursuant hereto, then the Bank may notify the Borrower of such fact within 180
days after the occurrence of the event giving rise thereto, and the Borrower
shall pay to the Bank from time to time on demand, as an additional fee payable
hereunder, such amounts as the Bank shall determine in good faith and certify in
a notice to the Borrower to be an amount that will adequately compensate the
Bank in light of these circumstances for its increased costs of maintaining such
capital incurred since the date of such event. The Bank shall allocate such cost
increases among its customers in good faith.
(S)4.5 Certificate. A certificate setting forth any additional amounts
-----------
payable pursuant to (S)4.3 or (S)4.4 and a brief explanation of such amounts
which are due, submitted by the Bank to the Borrower, shall be prima facie
evidence that such amounts are due and owing.
(S)4.6 Indemnification for Losses Upon Optional Prepayment. With respect
---------------------------------------------------
to LIBOR Loans, if the Borrower shall at any time (i) repay or prepay all or any
portion of the Note on a date other than the last day of the Interest Period
with respect thereto (as a consequence of acceleration pursuant to (S)11.1 or
otherwise) , or (ii) for any reason fail to convert the Loan or any portion
thereof with respect to which the Borrower has given (or is deemed to have
given) a Conversion Request, then the Borrower shall, on demand made by the Bank
at any time, pay to the Bank a sum, if any, which shall be determined by the
Bank in the following manner after each such payment:
(a) First, the Bank shall determine the amount by which (i) the
total amount of interest, which would have otherwise accrued hereunder on each
amount of principal so prepaid, or not converted during the period beginning on
the date of such payment or failure to convert and ending on the last day of the
Interest Period relating to such principal (the "Reemployment Period"), with
such interest to be calculated on the basis of the Type applicable to such
Interest Period, exceeds (ii) the total amount of interest which would accrue,
during the Reemployment Period, on any readily marketable bond or other
obligation of the United States of America designated by the Bank in its sole
discretion at or about the time of such payment (such bond or other obligation
of the United States of America to be in an amount equal (as nearly as may be)
to the principal amount so prepaid or not borrowed and to have a maturity (as
nearly as may be) equal to the Reemployment Period, and the interest to accrue
thereon to take account of amortization of any discount from par or accretion of
premium above par at which the same is selling at the time of designation). Each
such amount is hereafter referred to as an "Installment Amount".
<PAGE>
-13-
(b) Second, each Installment Amount shall be treated as payable on
the last day of the Interest Period relating to such principal had such
principal not been prepaid or such failure to borrow or convert not occurred.
(S)4.7 Interest on Overdue Amounts. Overdue principal and (to the
---------------------------
extent permitted by applicable law) interest on the Loan and all other overdue
amounts payable hereunder or under any of the other Loan Documents shall bear
interest payable on demand at a rate per annum equal to three percent (3%) above
the Base Rate until such amount shall be paid in full (after as well as before
judgment).
(S)4.8 Concerning Liability of the Borrower.
------------------------------------
(a) The Borrower is accepting liability hereunder in consideration
of the financial accommodations to be provided by the Bank under this Agreement,
for the benefit, directly and indirectly, of the Borrower and in consideration
of the undertakings of the Borrower to accept liability for its obligations
hereunder.
(b) The obligations of the Borrower under the provisions of this
(S)4.8 constitute full recourse obligations of the Borrower enforceable against
it to the full extent of its properties and assets, irrespective of the
validity, regularity or enforceability of this Agreement or any other
circumstances whatsoever.
(c) Except as otherwise expressly provided herein, the Borrower
hereby waives notice of acceptance of its liability, notice of occurrence of any
Event of Default, or of any demand for any payment under this Agreement, notice
of any action at any time taken or omitted by the Bank under or in respect of
any of the obligations hereunder, any requirement of diligence and, generally,
all demands, notices and other formalities of every kind in connection with this
Agreement. The Borrower hereby assents to, and waives notice of, any extension
or postponement of the time for the payment of any of the obligations hereunder,
the acceptance of any partial payment thereon, any waiver, consent or other
action or acquiescence by the Bank at any time or times in respect of any
default by the Borrower in the performance or satisfaction of any term,
covenant, condition or provision of this Agreement, any and all other
indulgences whatsoever by the Bank in respect of any of the obligations
hereunder, and the taking, addition, substitution or release, in whole or in
part, at any time or times, of any security for any of such obligations or the
addition, substitution or release, in whole or in part, of the Borrower or any
other Person which may be responsible for the payment of the Obligations.
without limiting the generality of the foregoing, the Borrower assents to any
other action or delay in acting or failure to act on the part of the Bank,
including, without limitation, any failure strictly or diligently to assert any
right or to pursue any remedy or to comply fully with applicable laws or
regulations thereunder, which might, but for the provisions of this (S)4.8,
afford grounds for terminating, discharging or relieving the Borrower, in whole
or in part, from any of its obligations under this (S)4.8, it being the
intention of the Borrower, that, so long as any of the obligations hereunder
remain unsatisfied, the obligations of the Borrower under this (S)4.8 shall not
be discharged except by performance and then only to the extent of such
performance. The obligations of the Borrower under this (S)4.8 shall not be
diminished or rendered unenforceable by any winding up,
<PAGE>
-14-
reorganization, arrangement, liquidation, reconstruction or similar proceeding
with respect to the Borrower or the Bank. The liability of the Borrower
hereunder shall continue in full force and effect notwithstanding any
absorption, merger, amalgamation or any other change whatsoever in the name,
membership, constitution or place of formation of the Borrower or the Bank.
(d) The provisions of this (S)4.8 are made for the benefit of the
Bank and its successors and assigns, and may be enforced by them from time to
time against the Borrower as often as occasion therefor may arise and without
requirement on the part of the Bank, first to marshall any of their claims or to
exercise any of their rights against the Borrower or to exhaust any remedies
available to them against the Borrower or to resort to any other source or means
of obtaining payment of any of the obligations hereunder or to elect any other
remedy. The provisions of this (S)4.8 shall remain in effect until all the
obligations hereunder shall have been paid in full or otherwise fully satisfied.
If at any time, any payment, or any part thereof, made in respect of any of the
obligations, is rescinded or must otherwise be restored or returned by the Bank
upon the insolvency, bankruptcy or reorganization of the Borrower, or otherwise,
the provisions of this (S)4.8 will forthwith be reinstated in effect, as though
such payment had not been made.
(S)5 SECURITY. The Obligations shall be unsecured, unless otherwise
--------
agreed by the Bank and the Borrower.
(S)6 REPRESENTATIONS AND WARRANTIES. The Borrower represents and
------------------------------
warrants to the Bank as follows:
(S)6.1 Authority; Etc.
--------------
(a) Due Organization; Good Standing. The Borrower is (i) duly
---------------------------------
organized and is validly existing and in good standing under the laws of the
State of Delaware and is duly qualified to do business in, and is in good
standing with respect thereto, under the laws of the Commonwealth of
Massachusetts, (ii) has all requisite power to own its property and conduct its
business as now conducted and as presently contemplated, and (iii) is in good
standing as a foreign entity and is duly authorized to do business in those
jurisdictions where such qualification is necessary except where a failure to be
so qualified in such other jurisdiction would not have a materially adverse
effect on the business, assets or financial condition of the Borrower.
(b) Authorization. The execution, delivery and performance of this
-------------
Agreement and the other Loan Documents to which the Borrower is or is to become
a party on or before the Closing Date and the transactions contemplated hereby
and thereby (i) are within the authority of the Borrower, (ii) have been duly
authorized by all necessary proceedings on the part of the Borrower, (iii) do
not conflict with or result in any breach or contravention of any provision of
law, statute, rule or regulation to which the Borrower is subject or any
judgment, order, writ, injunction, license or permit applicable to the Borrower
and (iv) do not conflict with any provision of the organizational documents of
the Borrower or other charter documents or bylaws of, or any agreement or other
instrument binding upon, the Borrower as to which the Borrower is a party or of
which Borrower has knowledge.
<PAGE>
-15-
(c) Enforceability. The execution and delivery of this Agreement
--------------
and the other Loan Documents to which the Borrower is or is to become a party as
of the Closing Date will result in valid and legally binding obligations of the
Borrower enforceable against the Borrower in accordance with the respective
terms and provisions hereof and thereof, except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of the remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
therefor may be brought.
(S)6.2 Governmental Approvals. The execution, delivery and performance
----------------------
by the Borrower of this Agreement and the other Loan Documents to which the
Borrower is or is to become a party as of the Closing Date and the transactions
contemplated hereby and thereby do not require the approval or consent of, or
filing with, any governmental agency or authority other than those already
obtained.
(S)6.3 Title to Property. Except as indicated on Schedule 6.3 hereto,
-----------------
the Borrower owns all of the assets reflected in the balance sheet of the
Borrower as at the Balance Sheet Date or acquired since that date (except
property and assets sold or otherwise disposed of in the ordinary course of
business since that date), subject to no rights of others, including any
mortgages, leases, conditional sales agreements, title retention agreements,
liens or other encumbrances (except a lien on the Real Property relating to the
Bond Transaction).
(S)6.4 Financial Statements. The following financial statements have
--------------------
been furnished to the Bank.
(a) Consolidated balance sheets of the Borrower and its
Subsidiaries as of the Balance Sheet Date and statements of income and cash
flows for the fiscal year then ended, certified by an independent certified
public accountant to have been prepared in accordance with and to fairly present
the financial condition of the Borrower as at the close of business on the date
thereof and the results of operations for the fiscal year then ended. There are
no contingent liabilities of the Borrower or any of its Subsidiaries as of such
date involving material amounts not disclosed in said balance sheets.
(b) Consolidated balance sheets, consolidated statements of income
and cash flows of the Borrower and its Subsidiaries for each of the fiscal
quarters of the Borrower ended since the Balance Sheet Date certified by the
chief financial officer of the Borrower to have been prepared in accordance with
generally accepted accounting principles consistent with those used in the
preparation of the annual certified statements delivered pursuant to paragraph
(a) above and to fairly present the financial condition of the Borrower and its
Subsidiaries as at the close of business on the dates thereof and the results of
operations for the fiscal quarters then ended (subject to year-end adjustments).
There are no contingent liabilities of the Borrower or its Subsidiaries as of
such dates involving material amounts, known to the officers of the Borrower,
not disclosed in such balance sheets and the related notes thereto.
(S)6.5 No Material Changes, Etc. Since the Balance Sheet Date, there has
------------------------
occurred no materially adverse change in the financial condition or business of
the Borrower and its
<PAGE>
-16-
Subsidiaries taken as a whole as shown on or reflected in the consolidated
balance sheet of the Borrower as at the Balance Sheet Date, or the consolidated
statements of income and cash flows for the fiscal year then ended, other than
changes in the ordinary course of business that have not had any materially
adverse effect either individually or in the aggregate on the business, assets,
financial condition or prospects of the Borrower.
(S)6.6 Franchises, Patents, Copyrights, Etc. The Borrower and its
------------------------------------
Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of its business substantially as now conducted without known
conflict with any rights of others.
(S)6.7 Litigation. Except as stated on Schedule 6.7 there are no
----------
actions, suits, proceedings or investigations of any kind pending or, to the
knowledge of Borrower, threatened against the Borrower and its Subsidiaries
before any court, tribunal or administrative agency or board that, if adversely
determined, might, either in any case or in the aggregate, materially adversely
affect the properties, assets, financial condition, business or prospects of the
Borrower or its Subsidiaries or materially impair the right of the Borrower or
its Subsidiaries to carry on business substantially as now conducted by them or
result in any substantial liability not adequately covered by insurance, or for
which adequate reserves are not maintained on the balance sheets of the
Borrower, or which question the validity of this Agreement or any of the other
Loan Documents to which the Borrower is or is to become a party as of the
Closing Date, or any action taken or to be taken pursuant hereto or thereto.
(S)6.8 No Materially Adverse Contracts, Etc. Neither the Borrower
-------------------------------------
nor any Subsidiary is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower. Neither the Borrower nor any
Subsidiary is any party to any contract or agreement that has, or is expected in
the judgment of the officers of the Borrower to have, any materially adverse
effect on the business of the Borrower and its Subsidiaries when taken as a
whole.
(S)6.9 Compliance With Other Instruments, Laws, Etc. Neither the
---------------------------------------------
Borrower nor any Subsidiary is in violation of any provision of its
organizational documents, by-laws, or any agreement or instrument to which it
may be subject or by which it or any of its properties may be bound or any
decree, order, judgment, statute, license, rule or regulation, in any of the
foregoing cases in a manner that could result in the imposition of substantial
penalties or materially and adversely affect the financial condition, properties
or business of the Borrower and its Subsidiaries, when taken as a whole.
(S)6.10 Tax Status. The Borrower (a) has made or filed all federal and
----------
state income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject, (b) has paid all taxes and other
governmental assessments and charges due or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and by appropriate proceedings and (c) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or
<PAGE>
-17-
declarations apply. There are no unpaid taxes in any material amount claimed to
be due by the taxing authority of any jurisdiction, and the officers of the
Borrower know of no basis for any such claim.
(S)6.11 No Event of Default. No Default or Event of Default has occurred
----------------------------------------------
and is continuing.
(S)6.12 Holding Company and Investment Company Acts. Neither the
-------------------------------------------
Borrower nor any Subsidiary is a "holding company", or a "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company", as such terms are
defined in the Public Utility Holding Company Act of 1935; nor is it an
"investment company", or an "affiliated company" or a "principal underwriter" of
an "investment company", as such terms are defined in the Investment Company Act
of 1940.
(S)6.13 Absence of UCC Financing Statements, Etc. Except as described
----------------------------------------
in Schedule 6.13 attached hereto, there is no financing statement, security
agreement, chattel mortgage, real estate mortgage or other document filed or
recorded with any filing records, registry, or other public office, that
purports to cover, affect or give notice of any present or possible future lien
on, or security interest in, any property of the Borrower or rights thereunder,
other than to the Bank.
(S)6.14 Certain Transactions. Except as set forth on Schedule 6.14,
--------------------
none of the officers, directors, or employees of the Borrower or any Subsidiary
is presently a party to any transaction with the Borrower or any Subsidiary
(other than for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director or such
employee or, to the knowledge of the Borrower, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
(S)6.15 Employee Benefit Plans; Multiemiployer Plans; Guaranteed Pension
----------------------------------------------------------------
Plans. Except as set forth on Schedule 6.15, neither the Borrower nor any
- -----
ERISA Affiliate maintains or contribute to any Employee Benefit Plan,
Multiemployer Plan or Guaranteed Pension Plan.
(S)6.16 Regulations U and X. No portion of the Loan is to be used
-------------------
for the purpose of purchasing or carrying any "margin security" or "margin
stock" as such terms are used in Regulations U and X of the Board of Governors
of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.
(S)6.17 Environmental Compliance. Except as described in Schedule
------------------------
6.17, the Borrower has taken all necessary steps to investigate the Past and
present condition and usage of the Real Estate and the operations conducted
thereon and, based upon such diligent investigation, makes the following
representations and warranties.
(a) With respect to the Real Estate, neither the Borrower nor any
operator of the Real Estate, or any operations thereon, is in violation, or
alleged violation, of any judgment,
<PAGE>
-18-
decree, order, law, license, rule or regulation pertaining to environmental
matters, including without limitation, those arising under the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 as amended ("CERCLA") , the
Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean
Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any
state or local statute, regulation, ordinance, order or decree relating to
health, safety or the environment (hereinafter "Environmental Laws") , which
violation involves the Real Estate and could have a material adverse effect on
the environment or the business, assets or financial condition of the Borrower.
(b) The Borrower has not received notice from any third party
including, without limitation, any federal, state or local governmental
authority, (i) that it has been identified by the United States Environmental
Protection Agency ("EPA") as a potentially responsible party under CERCLA with
respect to a site listed on the National Priorities List, 40 C.F.R. Part 300
Appendix B (1986); (ii) that any hazardous waste, as defined by 42 U.S.C.
(S)9601(14), any pollutant or contaminant as defined by 42 U.S.C. (S)9601(33) or
any toxic substances, oil or hazardous materials or other chemicals or
substances regulated by any Environmental Laws ("Hazardous Substances") which it
has generated, transported or disposed of have been found at any site at which a
federal, state or local agency or other third party has conducted or has order
that the Borrower conduct a remedial investigation, removal or other response
action pursuant to any Environmental Law; or (iii) that it is or shall be a
named party to any claim, action, cause of action, complaint, or legal or
administrative proceeding (in each case, contingent or otherwise) arising out of
any third party's incurrence of costs, expenses, losses or damages of any kind
whatsoever in connection with the release of Hazardous Substances.
(c) The Borrower is not subject to any applicable Environmental
Law requiring the performance of Hazardous Substance site assessments, or the
removal or remediation of Hazardous Substances, or the removal or remediation of
Hazardous Substances, or the giving of notice to any governmental agency or the
recording or delivery to other Persons of an environmental disclosure document
or statement by virtue of the transactions set forth herein and contemplated
hereby, or to the effectiveness of any other transactions contemplated hereby.
(S)6.18 Loan Documents. All of the representations and warranties of
--------------
the Borrower made in the other Loan Documents or any document or instrument
delivered or to be delivered to the Bank pursuant to or in connection with any
of such Loan Documents are true and correct in all material respects.
(S)6.19 Fiscal Year. The Borrower has a fiscal year ending on January
-----------
31st of each year.
(S)6.20 Subsidiaries. The Borrower currently has only those Subsidiaries
------------
listed on Schedule 6.20 attached hereto.
<PAGE>
-19-
(S)7 AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and
-------------------------------------
agrees that, so long as the Loan is outstanding:
(S)7.1 Punctual Payment. The Borrower will duly and punctually pay or
----------------
cause to be paid the principal and interest on the Loan and all fees provided
for in this Agreement, all in accordance with the terms of this Agreement and
the Note as well as all other sums owing pursuant to the Loan Documents.
(S)7.2 Maintenance of Office. The Borrower will maintain its chief
---------------------
executive offices at 25 John Road, Canton, Massachusetts or at such other place
in the United States of America as the Borrower shall designate upon written
notice to the Bank not less than fifteen (15) days in advance of a change in
such offices, where notices, presentations and demands to or upon the Borrower
in respect of the Loan Documents may be given or made.
(S)7.3 Records and Accounts. The Borrower will (a) keep, true and
--------------------
accurate records and books of account in which full, true and correct entries
will be made in accordance with generally accepted accounting principles and (b)
maintain adequate accounts and reserves for all taxes (including income taxes),
depreciation and amortization of its properties, contingencies and other
reserves.
(S)7.4 Financial Statements, Certificates and Information. The Borrower
--------------------------------------------------
will deliver to the Bank:
(a) as soon as practicable, but in any event not later than ninety
(90) days after the end of each fiscal year of the Borrower, consolidated
balance sheets of the Borrower and its Subsidiaries at the end of such
year, and the related statements of income and cash flows for such year,
each setting forth in comparative form the figures for the previous fiscal
year and all such statements to be in reasonable detail, each prepared in
accordance with generally accepted accounting principles and certified by
an independent certified public accountant satisfactory to the Bank to have
been prepared in accordance with generally accepted accounting principles
and to fairly present the financial condition of the Borrower and its
Subsidiaries as of the close of business on the date thereof and the
results of operations for the fiscal year then ended;
(b) as soon as practicable, but in any event not later than forty-
five (45) days after the end of each of the first three (3) fiscal quarters
of the Borrower, copies of the unaudited consolidated balance sheets of the
Borrower and its Subsidiaries as at the end of such quarter, and the
related consolidated statements of income and cash flows for the portion of
the fiscal year of the Borrower and its Subsidiaries then elapsed, all in
reasonable detail and prepared in accordance with generally accepted
accounting principles, together with a certification by the principal
financial or accounting officer of the Borrower that the information
contained in such financial statements fairly presents the financial
position of the Borrower and its Subsidiaries on the date thereof (subject
to year-end adjustments);
<PAGE>
-20-
(c) simultaneously with the deliver of the financial statements
referred to in subsection (b) above, a statement in the form of Exhibit F
hereto signed by the principal financial or accounting officer of the
Borrower and setting forth in reasonable detail computations evidencing
compliance with the covenants contained in (S)(S)9.1 through 9.3 and (if
applicable) reconciliations to reflect changes in generally accepted
accounting principles since the Balance Sheet Date;
(d) as soon as practicable, but in any event not later than ten
(10) days after the end of each month, a listing of Base Inventory and a
listing of Base Accounts, each to include ageings, certified by the chief
financial officer of the Borrower to be true, complete and correct; and
(e) from time to time such other financial data and information as
the Bank may reasonably request.
(S)7.5 Notices.
-------
(a) Defaults. The Borrower will promptly notify the Bank in
--------
writing of the occurrence of any Default or Event of Default. If any Person
shall give any notice or take any other action in respect of a claimed default
(whether or not constituting an Event of Default) under this Agreement or under
any note, evidence of indebtedness, indenture or other obligation to which or
with respect to which the Borrower or any of its Subsidiaries is a party or
obligor, whether as principal or surety, and such default would permit the
holder of such note or obligation or other evidence of indebtedness to
accelerate the maturity thereof, which acceleration would have a material
adverse effect on the Borrower, the Borrower shall forthwith give written notice
thereof to the Bank, describing the notice or action and the nature of the
claimed default.
(b) Environmental Events. The Borrower will promptly give notice
--------------------
to the Bank (i) of any violation of any Environmental Law that the Borrower or
any of its Subsidiaries reports in writing or is reportable by such Person in
writing (or for which any written report supplemental to any oral report is
made) to any federal, state or local environmental agency and (ii) upon becoming
aware thereof, of any inquiry, proceeding, investigation, or other action,
including a notice from any agency of potential environmental liability, or any
federal, state or local environmental agency or board, that has the potential to
materially adversely affect the assets, liabilities, financial condition,
operations or prospects of the Borrower.
(c) Notice of Litigation and Judgments. The Borrower will, and
----------------------------------
will cause each of its Subsidiaries to, give notice to the Bank in writing
within fifteen (15) days of becoming aware of any litigation or proceedings
threatened in writing or any pending litigation and proceedings affecting the
Borrower or to which the Borrower is or is to become a party involving an
uninsured claim against the Borrower that could reasonably be expected to have a
materially adverse effect on the Borrower and stating the nature and status of
such litigation or proceedings. The Borrower will give notice to the Bank, in
writing, in form and detail satisfactory to the Bank, within ten (10) days of
any judgment not covered by insurance, final or otherwise, against the Borrower
in an amount in excess of $750,000.00.
<PAGE>
-21-
(S)7.6 Existence; Maintenance of Properties. The Borrower will do or
------------------------------------
cause to be done all things necessary to preserve and keep in full force and
effect its existence as a Delaware corporation and its qualification to do
business in the Commonwealth of Massachusetts. The Borrower will do or cause to
be done all things necessary to preserve and keep in full force all of its
rights and franchises, and those of its Subsidiaries. The Borrower (a) will
cause all of its properties and those of its Subsidiaries used or useful in the
conduct of its business or the business of its Subsidiaries to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment, (b) will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Borrower may be necessary so that the business carried on in connection
therewith may be properly and conducted at all times, and (c) will, and will
cause each of its Subsidiaries to, continue to engage in the business now
conducted by them; provided that nothing in this (S)7.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the judgment of the Borrower, desirable
in the conduct of its business and does not in the aggregate materially
adversely affect the business of the Borrower.
(S)7.7 Insurance. The Borrower will, and will cause each of its
---------
Subsidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their properties and their business against such
casualties and contingencies as shall be in accordance with the prudent
practices of businesses engaged in similar activities in similar geographic
areas and in amounts, containing such terms, in such forms and for such periods
as may be reasonable and prudent. All such policies shall provide for written
notice to the Bank by the insurer at least thirty (30) days prior to any
cancellation of such insurance. Evidence of all renewals or replacements of such
insurance from time to time in force, reasonably satisfactory to the Bank shall
be delivered to the Bank before or as soon as practicable after the expiration
date of the then current insurance.
(S)7.8 Taxes. The Borrower will, and will cause each of its Subsidiaries
-----
to, pay taxes, assessments and other governmental charges and will duly pay
charges imposed upon it and its properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies that if unpaid might by law become a lien or
charge upon any of its property; provided that any such tax, assessment,
charge, levy or claim need not be paid if the validity or amount thereof shall
currently be contested in good faith by appropriate proceedings and if the
Borrower shall have set aside on its books adequate reserves with respect
thereto; and provided, further that the Borrower will pay all such taxes,
assessments, charges, levies or claims forthwith upon the commencement of
proceedings to foreclose any lien that may have attached as security therefor.
(S)7.9 Inspection of Properties and Books. The Borrower shall permit
----------------------------------
the Bank at the expense of the Borrower to visit and inspect any of the
properties of the Borrower or any of its Subsidiaries, to examine the books of
account and records of the Borrower (and to make copies thereof and extract
therefrom) and to discuss the affairs, finances and accounts of the Borrower and
its Subsidiaries with, and to be advised as to the same by, its officers, all at
such reasonable times and intervals during regular business hours upon
reasonable prior notice to Borrower. The
<PAGE>
-22-
Borrower shall permit the commercial finance examiners, agents, consultants, and
representatives of the Bank at the expense of the Borrower to conduct commercial
finance examinations of the books, accounts and records of the Borrower all at
such reasonable times and intervals during regular business hours upon
reasonable prior notice to Borrower.
(S)7.10 Compliance with Laws, Contracts, Licenses, and Permits. The
-------------------------------------------------------
Borrower will, and will cause each of its Subsidiaries to, comply with (a) all
applicable laws and regulations now or hereafter in effect wherever its business
are conducted, including all Environmental Laws, (b) the provisions of its
incorporation documents and by-laws, (c) all agreements and instruments to which
it is a party or by which it or any of its properties may be bound and (d) all
applicable decrees, orders and judgments. If at any time while the Loan or Note
is outstanding, any authorization, consent, approval, permit or license from any
officer, agency or instrumentality of any government shall become necessary or
required in order that the Borrower may fulfill any of their obligations
hereunder, the Borrower will immediately take or cause to be taken all
reasonable steps within the power of the Borrower to obtain such authorization,
consent, approval, permit or license and furnish the Bank with evidence thereof.
(S)7.11 Further Assurances. The Borrower will, and will cause each of its
------------------
Subsidiaries to, cooperate with the Bank and execute such further instruments
and documents as the Bank shall reasonably request to carry out to its
satisfaction the transactions contemplated by this Agreement and the other Loan
Documents.
(S)7.12 Bank Accounts. The Borrower shall maintain with the Bank its
-------------
operating and related cash management accounts.
(S)8 CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower
------------------------------------------
covenants and agrees that, so long as the Loan is outstanding:
(S)8.1 Restrictions on Indebtedness. The Borrower will not, and will
----------------------------
not permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Bank arising under any of the Loan
Documents or arising under the Bond Transaction;
(b) Current liabilities of the Borrower or any of its Subsidiaries
incurred in the ordinary course of business but not incurred through (i)
the borrowing of money, or (ii) the obtaining of credit except for credit
on an open account basis customarily extended and in fact extended in
connection with normal purchases of goods and services;
(c) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be made
in accordance with the provisions of (S)7.8;
(d) Indebtedness in respect of judgments or awards that have been
in force for less than the applicable period of taking an appeal so long as
execution is not levied
<PAGE>
-23-
thereunder or in respect of which the Borrower shall at the time in good
faith be prosecuting an appeal or proceedings for review and in respect of
which a stay of execution shall have been obtained pending such appeal or
review;
(e) Endorsements for collection, deposit or negotiation and
warranties of products or services, in each case incurred in the ordinary
course of business;
(f) Indebtedness existing on the date of this Agreement and listed
and described on Schedule 8.1 hereto;
(g) Purchase money indebtedness relating to equipment purchased by
Borrower in an aggregate amount not to exceed $2,000,000.00 outstanding at
any one time;
(h) Indebtedness which is subordinated to Borrower's obligation to
Bank in terms and conditions satisfactory to Bank.
(S)8.2 Restrictions on Liens, Etc.(S) The Borrower will not, and will
--------------------------
not permit any of its Subsidiaries to: (a) create or incur or suffer to be
created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of its property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangements; (d) suffer to
exist for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against its that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise
transfer any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; provided that the Borrower and any of its
Subsidiaries may create or incur or suffer to be created or incurred or to
exist:
(i) liens on properties to secure taxes, assessments and other
government charges in respect of obligations not required to be paid
pursuant to Section 7.8;
(ii) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(iii) liens of carriers, warehousemen, mechanics and materialmen,
and other like liens on properties in existence less than 40 days from the
date of creation thereof in respect of obligations not overdue;
(iv) presently outstanding liens on the Real Property pertaining
to the Bond Transaction; and
<PAGE>
-24-
(v) liens, on equipment so purchased, securing purchase money
indebtedness permitted in (S)8.1(g) above.
(S)8.3 Restrictions on Investments. The Borrower will not, and will
---------------------------
not permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment, except Investments in:
(a) marketable direct or guarantee obligations of the United States
of America that mature within one (1) year from the date of purchase by a
Borrower;
(b) demand deposits, certificates of deposit, bankers acceptances
and time deposits of United States banks having total assets in excess of
$1,000,000,000;
(c) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated
and the ratings for which are not less than "P 1" if rated by Moody's
Investors Services, Inc., and not less than "A-1", if rated by Standard and
Poor's;
(d) insured money market investment accounts with investment funds
having assets in excess of $100,000,000;
(e) Investments existing on the date hereof and listed on Schedule
8.3 hereto; and
(f) any other Investments made in the ordinary course of the
Borrower's business in a manner consistent with past practice, provided
that the aggregate value of all Investments under this subsection (e) shall
not exceed at any time $1,000,000.00.
(S)8.4 Merger, Consolidation, Sale of Assets. The Borrower will not, and
-------------------------------------
will not permit any of its Subsidiaries to, become a party to any merger or
consolidation, or agree to or effect any asset acquisition or disposition (or
acquisition or disposition of assets in the ordinary course of business
consistent with past practices) except (i) the merger or consolidation of one or
more Subsidiaries of the Borrower with and into the Borrower, (ii) the merger or
consolidation of two or more Subsidiaries of the Borrower and (iii) sales of
assets having a net book value not exceeding $500,000 in the aggregate during
the term of this Agreement.
(S)8.5 Compliance with Environmental Laws. The Borrower will not, and
----------------------------------
will not permit any of its Subsidiaries to, do any of the following except in
full compliance with all Environmental Laws and as disclosed on Schedule 6.17:
(a) use any of the Real Estate or any portion thereof as a facility for the
handling, processing, storage or disposal of Hazardous Substances; (b) cause or
permit to be located on any of the Real Estate any underground tank or other
underground storage receptacle for Hazardous Substances; (c) generate any
Hazardous Substances on any of the Real Estate; or (d) conduct any activity at
any Real Estate or use any Real Estate in any manner so as to cause any release,
spill, leak, emission, discharge, injection,
<PAGE>
-25-
escape, disposal or dumping (a "Release") or threatened Release of Hazardous
Substances on, upon or into the Real Estate.
(S)8.6 Distributions. The Borrower will not make any Distributions in
-------------
any fiscal year other than (i) dividends paid in additional stock, (ii) purchase
of common stock from shareholders pursuant to stock option agreements granted to
employees in the usual course of Borrower's business, and (iii) as compensation
to employees.
(S)8.7 Fiscal Year. Borrower shall not change its fiscal year without
-----------
the prior written consent of the Bank.
(S)9 FINANCIAL COVENANTS OF THE BORROWER. The Borrower covenants and
-----------------------------------
agrees that so long as the Loan is outstanding:
(S)9.1 Ratio of Net Operating Cash Flow to Debt Service Charges. The
--------------------------------------------------------
Borrower will not, at the end of any fiscal quarter, permit the ratio of (i) Net
Operating Cash Flow, for such fiscal quarter and the three next prior fiscal
quarters to (ii) Debt Service Charges, for such fiscal quarter and the three
next prior fiscal quarters, to be less than 2.0 to 1.
(S)9.2 Ratio of Total Liabilities to Tangible Net Worth. The Borrower
------------------------------------------------
will not, at the end of any fiscal quarter, permit the ratio of (i) Consolidated
Total Liabilities to (ii) Tangible Net Worth to be greater than 1.0 to 1.
(S)9.3 Minimum Tangible Net Worth. The Borrower will not at the end of
--------------------------
any fiscal quarter permit its Tangible Net Worth to be less than $55,000,000
plus fifty percent (50%) of Consolidated Net Income for each fiscal quarter
commencing with the current fiscal quarter.
(S)10 CLOSING CONDITIONS. The obligation of the Bank to make the Loan
------------------
shall be subject to the satisfaction of the following conditions precedent:
(S)10.1 Loan Documents. Each of the Loan Documents shall have been
--------------
duly executed and delivered by the respective parties thereto, shall be in full
force and effect and shall be in form and substance satisfactory to the Bank.
The Bank shall have received a fully executed copy of each such document.
(S)10.2 Certified Copies of Organization Documents. The Bank shall
------------------------------------------
have received from the Borrower a copy, certified as of a recent date by a duly
authorized officer of the Borrower to be true and complete, of all organization
documents of the Borrower and documents pertaining to its qualification to do
business in the Commonwealth of Massachusetts, as in effect on such date of
certification.
(S)10.3 By-laws; Resolutions. All action on the part of the Borrower
--------------------
necessary for the valid execution, delivery and performance by the Borrower of
this Agreement and the other Loan Documents to which it is or is to become a
party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Bank shall have been provided to the Bank. The Bank shall
have received from the Borrower true copies of its bylaws and the resolutions
adopted by its
<PAGE>
-26-
directors authorizing the transactions described herein, each certified by its
secretary or assistant secretary as of a recent date to be true, complete and
correct.
(S)10.4 Incumbency Certificate; Authorized Signers. The Bank shall
------------------------------------------
have received from the Borrower an incumbency certificate, dated as of the
Closing Date, signed by duly authorized officers of the Borrower and giving the
name and bearing a specimen signature of each individual who shall be
authorized: (a) to sign, in the name and on behalf of the Borrower, each of the
Loan Documents to which the Borrower is a party or is to become a party; (b) to
make Conversion Requests; and (c) to give notices and to take other action on
behalf of the Borrower under the Loan Documents.
(S)10.5 Certificates of Insurance. The Bank shall have received (a)
-------------------------
a certificate of insurance as to the insurance maintained by Borrower from the
insurer or an independent insurance broker dated as of the Closing Date,
identifying insurers, types of insurance, insurance limits, and policy terms;
(b) certified copies of all policies evidencing such insurance (or certificates
therefor signed by the insurer or an agent authorized to bind the insurer); and
(c) such further information and certificates from the Borrower, their insurers
and insurance brokers as the Bank may request.
(S)10.6 Opinion of Counsel. The Bank shall have received a favorable
------------------
opinion addressed to the Bank and dated as of the Closing Date, in form and
substance satisfactory to the Bank from counsel to the Borrower, as to the
matters described on Exhibit D.
(S)10.7 Representations True; No Event of Default. Each of the
-----------------------------------------
representations and warranties of the Borrower contained in this Agreement, the
other Loan Documents or in any document or instrument delivered pursuant to or
in connection with this Agreement shall be true as of the date as of which they
were made and shall also be true at and as of the time of the making of such
Loan, with the same effect as if made at and as of that time (except to the
extent of changes resulting from transactions contemplated or permitted by this
Agreement and the other Loan Documents and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially adverse,
and except to the extent that such representations and warranties relate
expressly to an earlier date) and no Default or Event of Default shall have
occurred and be continuing. The Bank shall have received a Closing Certificate
in the form of Exhibit B hereto signed by authorized officers of the Borrower to
such effect.
(S)10.8 No Legal Impediment. No change shall have occurred in any
-------------------
law or regulations thereunder or interpretations thereof that in the reasonable
opinion of the Bank would make it illegal for the Bank to make such Loan.
(S)10.9 Governmental Regulation. The Bank shall have received such
-----------------------
statements in substance and form reasonably satisfactory to the Bank as the Bank
shall require for the purpose of compliance with any applicable regulations of
the Comptroller of the Currency or the Board of Governors of the Federal Reserve
System or any other applicable regulatory authority.
(S)10.10 Proceedings and Documents. All proceedings in connection with
-------------------------
the transactions contemplated by this Agreement, the other Loan Documents and
all other documents incident
<PAGE>
-27-
thereto shall be satisfactory in substance and in form to the Bank and its
counsel, and the Bank and such counsel shall have received all information and
such counterpart originals or certified or other copies of such documents as the
Bank may reasonably request.
(S)11 EVENTS OF DEFAULT; ACCELERATION; ETC.
------------------------------------
(S)11.1 Events of Default and Acceleration. If any of the following
----------------------------------
events ("Events of Default" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice or lapse of time, "Defaults") shall
occur:
(a) the Borrower shall fail to pay any principal of the Loan when
the same shall become due and payable, whether at the stated date of
maturity or any accelerated date of maturity or at any other date fixed for
payment, including, without limitation, the mandatory payments specified in
(S)3.2 hereof;
(b) the Borrower shall fail to pay any interest on the Loan or any
other sums due hereunder or under any of the other Loan Documents within
five (5) days of the date when the same shall become due and payable,
whether at the stated date of maturity or any accelerated date of maturity
or at any other date fixed for payment;
(c) the Borrower shall fail to comply with any of its covenants
contained in (S)7, (S)8 or (S)9 hereof;
(d) the Borrower or any of its Subsidiaries shall fail to perform
any other term, covenant or agreement contained herein or in any of the
other Loan Documents (other than those specified elsewhere in this (S)11)
and such failure continues for thirty (30) days after written notice of
such failure has been given to the Borrower by the Bank;
(e) any representation or warranty of the Borrower in this
Agreement or any of the other Loan Documents or in any other document or
instrument delivered pursuant to or in connection with this Agreement shall
prove to have been false in any material respect upon the date when made;
(f) the Borrower or any of its Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any obligation for
borrowed money or credit received or fail to observe or perform any
material term, covenant or agreement contained in any agreement by which it
is bound, evidencing or securing borrowed money or credit received, for
such period of time as would permit (assuming the giving of appropriate
notice if required) the holder or holders thereof or of any obligations
issued thereunder to accelerate the maturity such obligations exceeding
$250,000.00 in the aggregate;
(g) the Borrower or any of its Subsidiaries shall make an
assignment for the benefit of creditors, or admit in writing its inability
to pay or generally fail to pay its debts as they mature or become due, or
shall petition or apply for the appointment of a trustee or other
custodian, liquidator or receiver of the Borrower or of any substantial
part of the assets of the Borrower or shall commence any case or other
proceeding relating to
<PAGE>
-28-
the Borrower or any of its Subsidiaries under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution
or liquidation or similar law of any jurisdiction, now or hereafter in
effect, or shall take any action to authorize or in furtherance of any of
the foregoing, or if any such petition or application shall be filed or any
such case or other proceeding shall be commenced against the Borrower or
any of its Subsidiaries and the Borrower or such Subsidiary shall indicate
its approval thereof, consent thereto or acquiescence therein;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Borrower or any of
its Subsidiaries bankrupt or insolvent, or approving a petition in any such
case or other proceeding, or a decree or order for relief is entered in
respect of the Borrower or any of its Subsidiaries in an involuntary case
under federal bankruptcy laws as now or hereafter constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any
uninsured final judgment against the Borrower that, with other outstanding
uninsured final judgments, undischarged, against the Borrower exceeds in
the aggregate $750,000.00.
(j) if any of the Loan Documents shall be cancelled, terminated,
revoked or rescinded otherwise than in accordance with the terms thereof or
with the express prior written agreement, consent or approval of the Bank,
or any action at law, suit or in equity or other legal proceeding to
cancel, revoke or rescind any of the Loan Documents shall be commenced by
or on behalf of the Borrower or any of its holders of Voting Interests, or
any court or any other governmental or regulatory authority or agency of
competent jurisdiction shall make a determination that, or issue a
judgment, order, decree or ruling to the effect that, any one or more of
the Loan Documents is illegal, invalid or unenforceable in accordance with
the terms thereof; or
(k) the Borrower or any of its Subsidiaries shall be indicted for
a federal crime, a punishment for which could include the forfeiture of any
assets of the Borrower or of any such Subsidiary;
then, and in any such event, so long as the same may be continuing, the Bank may
by notice in writing to the Borrower declare all amounts owing with respect to
this Agreement, the Note and the other Loan Documents to be, and they shall
thereupon forthwith become, immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived by the Borrower; provided that in the event of any Event of Default
specified in (S)11(b) or (S)11(h), all such amounts shall become immediately due
and payable automatically and without any requirement of notice from the Bank.
(S)11.2 Remedies. In case any one or more Events of Default shall
--------
have occurred and be continuing, and whether or not the Bank shall have
accelerated the maturity of the Loan pursuant to (S)11.1, the Bank, if owed any
amount with respect to the Loan, may proceed to protect and enforce its rights
and remedies under this Agreement, the Note or any of the other Loan Documents
by suit in equity, action at law or other appropriate proceeding, whether for
the
<PAGE>
-29-
specific performance of any covenant or agreement contained in this Agreement
and the other Loan Documents or any instrument pursuant to which the obligations
are evidenced, including to the full extent permitted by applicable law the
obtaining of the ex parte appointment of a receiver, and, if such amount shall
have become due, by declaration or otherwise, proceed to enforce the payment
thereof or any other legal or equitable right of the Bank. No remedy herein
conferred upon the Bank or the holder of the Note is intended to be exclusive of
any other remedy and each and every remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or any other provisions of law.
(S)12 SETOFF. Regardless of the adequacy of any collateral, during
------
the continuance of any Event of Default, any deposits (general or specific, time
or demand, provisional or final, regardless of currency, maturity, or the branch
of where such deposits are held) or other sums credited by or due from the Bank
to the Borrower and any securities or other property of the Borrower in the
possession of the Bank may be applied to or set off against the payment of
Obligations and any and all other liabilities, direct, or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, of the
Borrower to the Bank.
(S)13 EXPENSES; FEES. The Borrower agrees to pay on the Closing Date
--------------
(a) the reasonable costs of producing and reproducing this Agreement, the other
Loan Documents and the other agreements and instruments mentioned herein and (b)
the fees, expenses and disbursements of the Bank incurred in connection with the
preparation of the Loan Documents and other instruments mentioned herein. In
addition, the Borrower agrees to pay hereafter (c) any taxes payable after the
Closing Date on or with respect to the transactions contemplated by this
Agreement (the Borrower hereby agrees to indemnify the Bank with respect
thereto), (d) the reasonable fees, expenses and disbursements of the Bank's
counsel or any local counsel to the Bank incurred in connection with the
administration or interpretation of the Loan Documents and other instruments
mentioned herein, and any amendments, modifications, approvals, consents or
waivers hereto or hereunder, (e) the allocable costs and expenses of the Bank
relating to the conducting of periodic commercial finance examinations with
respect to the Borrower, including the allocable daily time charges of the
Bank's commercial finance examiners, agents, consultants, and representatives
engaged in such examinations as in effect from time to time, and reasonable out
of pocket travel and other related expenses, and (f) the fees, expenses and
disbursements of the Bank incurred in connection with the administration or
interpretation of the Loan Documents and the other instruments mentioned herein.
Borrower shall also pay to the Bank, on the Closing Date and on each of the
first two anniversary dates of this Agreement, a fee ("Commitment Fee") of
$28,125.00 on each such date. In addition, the Borrower agrees to pay all
reasonable out-of-pocket expenses (including reasonable attorneys' fees and
costs, which attorneys may be employees of the Bank and the fees and costs of
appraisers, engineers, investment bankers or other experts retained by the Bank
in connection with any such enforcement proceedings) incurred by the Bank in
connection with (i) the enforcement of or preservation of rights under any of
the Loan Documents against the Borrower or the administration thereof after the
occurrence of a Default or Event of Default and (ii) any litigation, proceeding
or dispute whether arising hereunder or otherwise, in any way related to the
Bank's
<PAGE>
-30-
relationship with the Borrower. The covenants of this (S)13 shall survive
payment or satisfaction of payment of amounts owing with respect to the Note.
(S)14 INDEMNIFICATION. The Borrower agrees to indemnify and hold
---------------
harmless the Bank from and against any and all claims, actions and suits whether
groundless or otherwise, and from and against any and all liabilities, losses,
damages and expenses of every nature and character arising out of this Agreement
or any other Loan Documents or the transactions contemplated hereby including,
without limitation, (a) any actual or proposed use by the Borrower of the
proceeds of any of the Loan, (b) the Borrower entering into or performing this
Agreement or any of the other Loan Documents or (c) with respect to the Borrower
and its properties and assets, the violation of any Environmental Law, the
Release or threatened Release of any Hazardous Substances or any action, suit,
proceeding or investigation brought or threatened with respect to any Hazardous
Substances (including, but not limited to claims with respect to wrongful death,
personal injury or damage to property), in each case including, without
limitation, the reasonable fees and disbursements of counsel and allocated costs
of internal counsel incurred in connection with any such investigation,
litigation or other proceeding. In litigation, or the preparation therefor, the
Bank shall be entitled to select its own counsel and, in addition to the
foregoing indemnity, the Borrower agrees to pay promptly the reasonable fees and
expenses of such counsel. If, and to the extent that the obligations of the
Borrower under this (S)14 are unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment in satisfaction of such
obligations which is permissible under applicable law. The provisions of this
(S)14 shall survive the repayment of the Loan and the termination of the
obligations of the Bank hereunder.
(S)15 SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
--------------------------
representations and warranties made herein, in the Note, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Borrower or any of its Subsidiaries pursuant hereto shall be deemed to have
been relied upon by the Bank, notwithstanding any investigation heretofore or
hereafter made by it, and shall survive the making by the Bank of the Loan, as
herein contemplated, and shall continue in full force and effect so long as any
amount due under this Agreement or the Note or any of the other Loan Documents
remains outstanding. The indemnification obligations of the Borrower provided
herein and the other Loan Documents shall survive the full repayment of amounts
due and the termination of the obligations of the Bank hereunder and thereunder
to the extent provided herein and therein. All statements contained in any
certificate or other paper delivered to the Bank at any time by or on behalf of
the Borrower or any of its Subsidiaries pursuant hereto or in connection with
the transactions contemplated hereby shall constitute representations and
warranties by such Borrower or such Subsidiary hereunder.
(S)16 ASSIGNMENT; PARTICIPATIONS; ETC.
-------------------------------
(S)16.1 Assignment by the Bank. The Bank may assign all or a portion
----------------------
of its rights under this Agreement and the same portion of the Loan at the time
owing to it, and the Note held by it, provided that such assignment is in
writing (the "Assignment"). The Bank will give Borrower reasonable notice of
any such assignment. Upon execution and delivery of the Assignment, the
<PAGE>
-31-
assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment, shall have the rights and obligations of the Bank hereunder and
under the Loan Documents. Upon the effective date of such Assignment, the Bank
shall be relieved from its obligations hereunder to the extent assigned to the
assignee pursuant to the Assignment. The Borrower shall, on request of the
Bank, execute such further documents and instruments as may be necessary to
carry out the purposes of the Assignment.
(S)16.2 Participations. The Bank may sell participations to one or
--------------
more banks or other entities in all or a portion of the Bank's rights and
obligations under this Agreement and other Loan Documents; provided that (a) any
such sale or participation shall not affect the rights and duties of the Bank
hereunder to the Borrower and (b) the only rights granted to the participant
pursuant to such participation arrangements with respect to waivers, amendments
or modifications of the Loan Documents shall be (i) the rights to approve
waivers, amendments or modifications that would reduce the principal of or the
interest rate on any Loan, or extend any regularly scheduled payment date for
principal or interest, and (ii) the rights to release collateral, if any.
(S)16.3 Disclosure. The Borrower agrees that, in addition to
----------
disclosures made in accordance with standard banking practices, the Bank may
disclose information obtained by the Bank pursuant to this Agreement to
assignees or participants and potential assignees or participants hereunder.
(S)16.4 Pledge by Bank. The Bank may at any time pledge all or any
--------------
portion of its interest and rights under this Agreement (including all or any
portion of its Note) to any of the twelve Federal Reserve Banks organized under
(S)4 of the Federal Reserve Act, 12 U.S.C. (S)341. No such pledge or the
enforcement thereof shall release the Bank from its obligations hereunder or
under any of the other Loan Documents.
(S)16.5 No Assignment by Borrower. The Borrower shall not assign or
-------------------------
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of the Bank.
(S)17 NOTICES, ETC. Except as otherwise expressly provided in this
-------------
Agreement, all notices and other communications made or required to be given
pursuant to this Agreement or the Note shall be in writing and shall be
delivered in hand, mailed by United States registered or certified first class
mail, postage prepaid, sent by overnight courier, or sent by telegraph,
telecopy, telefax or telex and confirmed by delivery via courier or postal
service, addressed as follows:
(a) if to the Borrower, at 25 John Road, Canton, Massachusetts
02021, Attention: Steven N. Tannenbaum or at such other address for notice
as the Borrower shall last have furnished in writing to the Bank; and
(b) if to the Bank at 100 Federal Street - 8th Floor, Boston,
Massachusetts 02110, Attention: Jeffrey Westling, Vice President, or such
other address for notice as the Bank shall last have furnished in writing
to the Borrower.
<PAGE>
-32-
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at the
time of the receipt thereof by such officer or the sending of such facsimile and
(ii) if sent by registered or certified first-class mail, postage prepaid, on
the third Business Day following the mailing thereof.
(S)18 GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE. THIS
--------------------------------------------------
AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF SUCH COMMONWEALTH (EXCLUDING THE LAWS APPLICABLE TO
CONFLICTS OR CHOICE OF LAW). THE BORROWER AGREES THAT ANY SUIT FOR THE
ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT
IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING
THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE
SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE
ADDRESS SPECIFIED IN (S)17. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR
THAT SUCH SUIT IS BROUGHT IN ANY INCONVENIENT COURT.
(S)19 HEADINGS. The captions in this Agreement are for convenience
--------
of reference only and shall not define or limit the provisions hereof.
(S)20 COUNTERPARTS. This Agreement and any amendment hereof may be
------------
executed in several counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an original, and all of
which together shall constitute one instrument. In proving this Agreement it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought.
(S)21 ENTIRE AGREEMENT, ETC. The Loan Documents and any other
---------------------
documents executed in connection herewith or therewith express the entire
understanding of the parties with respect to the transactions contemplated
hereby. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except as provided in (S)23.
(S)22 WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. THE BORROWER
----------------------------------------------
HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OF
THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR
THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT TO THE EXTENT EXPRESSLY
PROHIBITED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY LITIGATION REFERRED TO IN THE
<PAGE>
-33-
PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR
ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE BANK HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B) ACKNOWLEDGE THAT THE BANK HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS
A PARTY BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED HEREIN.
(S)23 CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise
----------------------------------
expressly provided in this Agreement, any consent or approval required or
permitted by this Agreement may be given, and any term of this Agreement or of
any other instrument related hereto or mentioned herein may be amended, and the
performance or observance by the Borrower of any terms of this Agreement or such
other instrument or the continuance of any Default or Event of Default may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with, but only with, the written consent of the Bank. No waiver
shall extend to or affect any obligation not expressly waived or impair any
right consequent thereon. No course of dealing or delay or omission on the part
of the Bank in exercising any right shall operate as a waiver thereof or
otherwise be prejudicial thereof. No notice to or demand upon the Borrower
shall entitle the Borrower to other or further notice or demand in similar or
other circumstances.
(S)24 SEVERABILITY. The provisions of this Agreement are severable,
------------
and if any one clause or provision hereof shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Agreement in
any jurisdiction.
<PAGE>
-34-
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a
sealed instrument as of the date first set forth above.
COPLEY PHARMACEUTICAL, INC.,
a Delaware corporation
By: ___________________________________
Name: Steven N. Tannenbaum
Title: Executive Vice President-Finance
THE FIRST NATIONAL BANK OF BOSTON
By: ___________________________________
Name: Jeffrey Westling
Title: Vice President
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED PROMISSORY NOTE
------------------------------------
$7,500,000.00 August , 1992
Boston, Massachusetts
FOR VALUE RECEIVED, the undersigned, COPLEY PHARMACEUTICAL, INC., a
Delaware corporation having a principal office at 25 John Road, Canton,
Massachusetts 02021 (referred to as the "Borrower"), hereby unconditionally
promises to pay to the order of THE FIRST NATIONAL BANK OF BOSTON (hereinafter,
together with its successors in title and assigns the "Bank") at the head office
of the Bank, at 100 Federal Street, Boston, Massachusetts 02110, the principal
sum of SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS AND 00 CENTS ($7,500,000.00),
or such lesser amount as may be advanced hereunder and outstanding. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned to them in the Amended and Restated Loan Agreement of even date
herewith by and between the Bank and the Borrower (the "Agreement"). Unless
otherwise provided herein, the rules of interpretation set forth in (S)l.2 of
the Agreement shall be applicable to this Note.
This Note constitutes the amendment and restatement of that certain note:
(i) a promissory note in the original principal amount of $2,500,000.00 from
Borrower to the Bank dated December 16, 1988, as from time to time previously
amended (hereinafter referred to as the "Prior Note") , and the Note is issued
in substitution therefor and as an amendment and replacement thereof. Nothing
herein or in any other document shall be construed to constitute payment of the
Prior Note.
The Borrower further promises to pay principal from time to time at the
times provided in the Agreement. The Borrower promises to pay interest from the
date hereof on the principal amount from time to time outstanding at the rates
and times in all cases in accordance with the terms of the Agreement. The
Borrower promises to pay in full on September 30, 1995 (the "Maturity Date"),
and there shall become absolutely due and payable on the Maturity Date, all
principal outstanding on such date, together with any and all accrued and unpaid
interest thereon and all other sums due pursuant to this Note and the Agreement.
This Note is issued pursuant to and is entitled to the benefits of the
Agreement. The Borrower may borrow and re-borrow under this Note in the manner
and to the extent specified in this Agreement. The principal of this Note is
subject to prepayment in whole or in part in the manner and to the extent
specified in the Agreement.
In case an Event of Default shall occur and be continuing, the entire
unpaid principal amount of this Note and all of the unpaid interest accrued
thereon may become or be declared due and payable in the manner and with the
effect provided in the Agreement.
A-1
<PAGE>
The Borrower and all endorsers hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note and assent to any
extensions of the time of payment or forbearance or other indulgence without
notice.
THIS NOTE AND THE OBLIGATIONS OF BORROWERS HEREUNDER SHALL BE GOVERNED BY
AND INTERPRETED AND DETERMINED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
in its name as an instrument under seal on the date and in the year first above
written.
COPLEY PHARMACEUTICAL, INC.,
a Delaware Corporation
By: _____________________________
Name: ___________________________
Title: ____________________________
A-2
<PAGE>
ADVANCES AND PAYMENTS OF PRINCIPAL
----------------------------------
Advances and payments of principal of this Note were made on the dates and
in the amounts specified below:
Amount Amount Prepaid Balance of Notation
Date Advanced or Repaid Principal Unpaid Made By:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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A-3
<PAGE>
EXHIBIT B
---------
CLOSING CERTIFICATE
-------------------
COPLEY PHARMACEUTICAL, INC.
August , 1993
The First National Bank of Boston
100 Federal Street
Boston, MA 02110
Attn: David Popkin, Corporate Lending, Massachusetts Division
RE: CLOSING CERTIFICATE UNDER AMENDED AND RESTATED LOAN
AGREEMENT DATED AS OF AUGUST , 1993 (THE "AGREEMENT")
----------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby certifies to you, in accordance with the
provisions of (S)10.7 of the Agreement, that the representations and warranties
of the undersigned contained in the Agreement and in each document and
instrument delivered pursuant to or in connection therewith were true as of the
date as of which they were made, are also true at and as of the date hereof , in
each case except as otherwise permitted pursuant to the provisions of (S)10.7 of
the Agreement, and that no Default or Event of Default has occurred and is
continuing.
Very truly yours,
COPLEY PHARMACEUTICAL, INC.,
a Delaware Corporation
By: _______________________________
Name: Steven Tannenbaum
Title: Executive Vice President-Finance,
Chief Financial Officer, Treasurer
and Secretary
B-1
<PAGE>
EXHIBIT C
---------
AUTHORITY, DUE EXECUTION AND ENFORCEABILITY
-------------------------------------------
OPINION REQUIREMENTS
--------------------
The opinion of counsel to the Borrower as to the authority, due execution
and enforceability of the Loan Documents shall cover the following matters:
(a) The due organization, valid existence, qualification to do business and
good standing of the Borrower.
(b) That the Borrower is duly qualified to do business in each of the
states where such qualification is necessary.
(c) That the Borrower has all requisite power to own its property and
conduct its business as now or proposed to be conducted, and to enter and
perform its obligations under the Loan Documents to which it is a party.
(d) That each Loan Document to which the Borrower is a party has been duly
executed and delivered to the Bank and is the valid and legally binding
obligation of the Borrower, enforceable in accordance with its terms, except as
enforceability is limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws of general application affecting the rights of creditors or by
the discretionary nature of the remedy of specific performance.
(e) That the execution, delivery and performance of each Loan Document to
which the Borrower is a party and the transactions contemplated thereby: (i) has
been duly authorized by all necessary proceedings on the part of the Borrower;
(ii) does not conflict with or result in any breach or contravention of any
provision of law, statute, rule or regulation to which the Borrower is subject
or any decree or judgment binding on the Borrower; (iii) does not conflict with
any provision of any organization documents of, or by-laws of, the Borrower, or
the charter documents of the Borrower or any indenture agreement or other
instrument to which the Borrower is a party, or which is binding upon the
Borrower or on any of its properties, nor will the same create any lien or
security interest under or pursuant to any such indenture agreement or other
instrument; and (iv) does not require the approval or consent of, or filing
with, any governmental agency or authority.
(f) That to the knowledge of such counsel, there is no action, suit,
proceeding or investigation of any kind pending or threatened against either
Borrower, that, if adversely determined, might, either in any case or in the
aggregate, adversely affect the properties, assets, financial condition or
business of the Borrower or impair the right of the Borrower to carry on
business substantially as now conducted by it, or which question the validity of
the Loan Documents or any action to be taken pursuant thereto.
C-1
<PAGE>
EXHIBIT D
---------
COPLEY PHARMACEUTICAL, INC.
25 JOHN ROAD
CANTON, MA 02021
COMPLIANCE CERTIFICATE UNDER AMENDED AND RESTATED
-------------------------------------------------
LOAN AGREEMENT DATED AS OF AUGUST , 1993
-------------------------------------------
The undersigned, Steven N. Tannenbaum, the duly elected and qualified Chief
Financial Officer of Copley Pharmaceutical, Inc., a Delaware corporation (the
"Borrower"), hereby certifies on behalf of the Borrower as of the date hereof
the following:
1. No Defaults. I have read a copy of the Amended and Restated Loan
-----------
Agreement dated as of August , 1993 (the "Agreement") between the Borrower and
The First National Bank of Boston. Terms used herein and not otherwise defined
herein shall have the meanings set forth in (S)l of the Agreement. The Borrower
is not in default in the performance or observance of any of the covenants,
terms or provisions of the Agreement or any of the other Loan Documents.
Attached hereto as Appendix I are all relevant calculations needed to determine
whether the Borrower is in compliance with (S)(S)9.1, 9.2 and 9.3 of the
Agreement.
2. No Material Changes, Etc. Except as disclosed on Appendix II hereto,
------------------------
since January 31, 1993 there have occurred no materially adverse changes in the
assets, financial condition, business or prospects of the Borrower as shown on
or reflected in the balance sheets of the Borrower as at such date other than
changes to the financial statements in the ordinary course of business that have
not had any materially adverse effect either individually or in the aggregate on
the assets, business, financial condition or prospects of the Borrower.
3. No Materially Adverse Contracts, Etc. The Borrower is not subject to
------------------------------------
any charter, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation that has or is expected, in the reasonably judgment of
the officers and directors of the Borrower, in the future to have a materially
adverse effect on the business, assets, financial condition or prospects of the
Borrower. Borrower is not a party to any contract or agreement that has or is
expected, in the reasonable judgment of the officers and directors of the
Borrower, to have any materially adverse effect on the business, assets,
financial condition or prospects of the Borrower.
COPLEY PHARMACEUTICAL, INC.,
a Delaware Corporation
By: _______________________________
Name: Steven Tannenbaum
Title: Executive Vice President-Finance,
Chief Financial Officer, Treasurer
and Secretary
Date: _______________________________
D-1
<PAGE>
APPENDIX I
----------
COVENANT CALCULATIONS
---------------------
1. Ratio of Net Operating Cash Flow to Debt Service
Charges ((S)9.1)
(a) Net Operating Cash Flow for the current quarter $_______
and prior three quarters
(b) Debt Service Charges for the current quarter and $_______
prior three quarters
(a) (divided by) (b) Required Ratio: Not less than 2.0 to 1
Actual: ______ to 1
2. Ratio of Total Liabilities to Tangible Net Worth ((S)9.2)
(a) Total Liabilities $_______
(b) Tangible Net Worth $_______
(a) (b) Required Ratio: Not greater than 1.0 to 1
Actual: _______ to 1
3. Tangible Net Worth ((S)9.3)
Required: $55,000,000 plus 50% Net
Income per quarter
aggregate
Actual: _______
I-1
<PAGE>
APPENDIX II
-----------
MATERIAL CHANGES
----------------
II-1
<PAGE>
EXHIBIT 10.14(B)
----------------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is made and entered into effective this 12th day
of October, 1993, by and between EMPLOYEE (the "Employee") and COPLEY
PHARMACEUTICAL, INC. (the "Company"), a Delaware corporation.
WITNESSETH:
----------
WHEREAS, Employee is considered a key employee of the Company; and
WHEREAS, Employee and the Company desire to enter into an Agreement to
provide for Employee's continuing employment with the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. EMPLOYMENT; DUTIES. During the term of the Employment Period (as
------------------
defined in Section 2), and subject to the terms and conditions hereof, the
Company shall employ the Employee as TITLE, and Employee shall perform such
duties for the Company as are incident to such position, together with such
other duties, consistent with Employee's knowledge, experience and position with
the Company, as s/he may be reasonably requested to perform by the Company from
time to time in connection with such employment.
Employee accepts such employment, and agrees to render the services
described herein and to devote his/her entire available business time, effort,
skill and attention to promote the best interests of the Company.
2. EMPLOYMENT PERIOD. The term of this Agreement shall automatically
-----------------
commence on the date on which at least a majority of the Company's outstanding
voting securities shall have been acquired pursuant to the transactions
contemplated by the Acquisition Agreement dated as of October 8, 1993, by and
among Hoechst Celanese Corporation, HCCP Acquisition Corporation and the
Company, and shall end on the date NUMBER years after such date, unless sooner
terminated pursuant to Section 5 hereof. Thereafter, this Agreement shall
automatically be renewed for successive periods of one (1) year, unless the
Company shall have given the Employee not less than six (6) months' written
notice of non-renewal and shall pay the Employee the Severance Payments (as
defined below) that would be payable if Employee's employment were terminated in
accordance with Section 5.4 hereof. The term "Employment Period" shall mean the
period of the Employee's employment with the Company hereunder.
3. SALARY. As compensation for the services to be rendered by Employee
------
during the Employment Period, the Company shall pay Employee the base annual
salary of AMOUNT ("Base Salary"), payable periodically consistent with the
Company's normal payroll practices, less such deductions and amounts to be
withheld therefrom as may be required under applicable law. The Base Salary may
be increased from time to time as agreed upon by the Company and
<PAGE>
Employee; provided, that in the sole discretion of the Board of Directors,
Employee shall be entitled to receive inflation and merit increases determined
in accordance with past practices.
4. OTHER BENEFITS AND TERMS OF EMPLOYMENT. During the Employment Period,
---------------------------------------
the following benefits and other terms of employment shall also apply:
(A) EXPENSES. The Company shall reimburse Employee for customary
---------
and necessary expenses reasonably incurred by Employee in the course of
performing those duties which are incident to his/her position or which s/he has
been requested to perform by the Company, all in accordance with the Company's
normal reimbursement policies.
(B) BONUS. Employee shall receive such quarterly, annual or other
-----
bonuses as may, from time to time, be approved by the Company's Board of
Directors, based upon various factors reviewed by the Board and based on the
achievement of the objectives determined by the Board. Such bonuses are entirely
within the discretion of the Board. Employee shall also participate in such
other incentive compensation programs, if any, as the Company may establish for
key executive employees. In addition to the foregoing, the Company will continue
to maintain an annual bonus pool the size of which shall be determined in
accordance with past practice. Employee shall be eligible to receive a bonus
from such bonus pool as determined by the Company's Board of Directors in its
discretion.
(C) OPTIONS. At the discretion of the Board of Directors, Employee
-------
shall be eligible to receive periodic grants of stock options to purchase shares
of the Company's Common Stock. Any options to be granted shall be subject to an
appropriate option agreement in the form normally used by the Company with
respect to its key employees.
(D) INSURANCE, OTHER BENEFITS. Employee shall participate (at the
-------------------------
Company's expense) in employee health, hospitalization, disability, group-term
life, vacation, and other benefit programs on the same basis as that of other
Company executives. In addition, Employee shall be entitled to such other
benefits as may be generally maintained or provided by the Company for the
benefit of other key executive employees.
5. TERMINATION.
-----------
5.1 GENERAL. The Employment Period shall terminate prior to its
-------
scheduled expiration set forth in Section 2 upon the earliest of the following:
(i) the Employee's death, (ii) a determination that Employee has become
disabled, as defined in Section 5.2, (iii) termination "for cause" under the
provisions of Section 5.3, or (iv) termination without cause as provided in
Section 5.4.
5.2 DISABILITY. Employee shall be regarded as "disabled" for
----------
purposes of this Agreement if s/he has been unable to render the services
required of him/her hereunder, in a manner consistent with past practice, for a
period of four (4) consecutive months or for any period in the aggregate of
eight (8) months in any twelve (12) month period because of a serious and
continuing health impairment, which impairment will most likely result in
Employee's
<PAGE>
continued inability to render the services required of him/her hereunder in a
manner consistent with past practices; provided, however, that thirty (30) days'
prior notice of termination for disability shall be given to Employee.
If the Employee dies during the Employment Period (without regard to the
Company's right to terminate this Agreement thereupon), or if the Company
exercises its right to terminate the Employee under this Section 5.2, then in
each such case the Employee or his/her estate shall be entitled to the same
payments and other benefits as are provided in the event of termination pursuant
to Section 5.4 (including without limitation the acceleration of Employee's
stock options as provided in Section 5.4). In the case of death or disability,
at the Company's option the salary and benefit payment obligations of the
Company may be funded by insurance paid for by the Company.
In the event that there should be any dispute between Employee and the
Company as to whether Employee is "disabled" within the meaning of this
Agreement or as to whether Employee has recovered from any such disability, such
matter shall be conclusively determined by the written report of a physician
acceptable to the Board and Employee, who shall set forth in his report the
nature and seriousness of the impairment suffered by Employee and the likely
effect of such impairment on Employee's future ability to render the services
required hereunder. Employee agrees to submit to examination by any such
physician to the extent reasonably requested by the Board for the purpose of
ascertaining the extent of Employee's disability or recovery therefrom and the
parties agree that any determination with respect to Employee's disability may
be conclusively resolved in the sole judgment of the Board if Employee should
fail to comply with any reasonable request by the Board to submit to such an
examination.
5.3 FOR CAUSE. The Company may terminate the Employment Period and
---------
discharge Employee for cause upon giving thirty (30) days' (five (5) days in the
case of subparagraph (iv) below) prior written notice to Employee of such
termination. Regardless of any broader definition of "cause" which might
otherwise apply under applicable law, the term "for cause" as used herein shall
be defined to include only one or more of the following grounds: (i)
misappropriation by Employee of any material amounts of money or other assets or
property (tangible or intangible) of the Company; (ii) the Employee's willful
refusal to perform reasonable assignments given to Employee commensurate with
such Employee's status, functions or responsibilities as a key employee;
provided, that (a) such refusal is material and repetitive, and (b) the Employee
shall have been given reasonable notice and explanation of each refusal, and
reasonable opportunity to cure such refusal, and no cure has been effected
within a reasonable time after notice; (iii) conviction of Employee of a felony;
or (iv) a breach of any of the provisions of Section 6 hereof.
5.4 AT THE ELECTION OF THE COMPANY FOR REASONS OTHER THAN FOR
---------------------------------------------------------
CAUSE. The Company may terminate the Employee's employment hereunder at any
- -----
time during the term of this Agreement without cause by giving ninety (90) days'
advance written notice to the Employee of an election to terminate.
<PAGE>
In the event the Company exercises its right to terminate the Employee
under this Section 5.4, the Company agrees to pay the Employee a lump sum
severance or termination payment of one (1) year's Base Salary at the then
current rate, (ii) medical and other health insurance benefits for such year;
and (iii) the pro rata portion of any bonus to which the Employee is otherwise
entitled (the "Severance Payments"). Such Severance Payments shall be payable
on the Employee's last date of employment hereunder and shall be subject to all
applicable federal and state withholding and other taxes. In the event of a
termination under this Section 5.4, the Company may retain the Employee as a
consultant on terms mutually agreeable between the Company and the Employee.
In addition, notwithstanding anything to the contrary contained in any
stock option agreement between the Employee and the Company, if the Company
exercises its right to terminate the Employee under this Section 5.4, then all
stock options then held by the Employee shall automatically accelerate and
become fully exercisable as of the date on which the Employee received notice of
termination. Such stock options shall remain fully exercisable until the close
of business on the 60th day after the last date of the Employee's employment
with the Company hereunder. The Company shall take any and all actions
necessary to effect the provisions of this paragraph.
It shall be deemed to be a termination "without cause" if the Employee's
responsibilities and executive authority are reduced or diluted in any material
respect without the Employee's consent (which reduction or dilution is not
corrected by the Company within 30 days following written notification by
Employee to the Company that Employee intends to terminate his/her employment
for such reason), or the Employee is relocated to another Company office or
facility more than 25 miles from Canton, Massachusetts without the Employee's
consent.
In the event that Employee would, except for the remainder of this Section,
be subject to a tax pursuant to Section 4999 of the Internal Revenue Code of
1986, as amended, (the "Code") or any successor provision that may be in effect,
as a result of "parachute payments" (as that term is defined in Section
280G(b)(2)(A) and (d)(3) of the Code) made pursuant to this Agreement, or a
deduction would not be allowed to the Company for all or any part of such
payments by reason of Section 280G(a) of the Code, or any successor provision
that may be in effect, such payments shall be reduced, eliminated, or postponed
in such amounts as are required to reduce the aggregate "present value" (as that
term is defined in Section 280G(d)(4) of the Code) of such payments to one
dollar less than an amount equal to three times Employee's "base amount," (as
that term is defined in Section 280G(b)(3)(a) and (d)(1) and (2) of the Code) to
the end that Employee is not subject to tax pursuant to such Section 4999 and no
deduction is disallowed by reason of such Section 280G(a). To achieve such
required reduction in aggregate present value, Employee in his/her sole
discretion shall determine what item(s) constituting the parachute payments
shall be reduced, eliminated or postponed, the amount of each such reduction,
elimination or postponement, and the period of each such postponement. To
enable Employee to make such determine, the Company shall be required to provide
Employee with such information as is reasonably necessary for such
determination.
<PAGE>
Prior to the making of any payment under this Section, either party may
request a determination as to whether such payment would constitute a "parachute
payment," and, if so, the amount by which the payment must be reduced in
accordance herewith. If such a determination is requested, it shall be made
promptly, at the Company's expense, by independent tax counsel selected by the
Employee and approved by the Company (which approval shall not unreasonably be
withheld), and such determination shall be conclusive and binding on the
parties. The Company shall provide such information as such counsel may
reasonably request, and such counsel may engage accountants or other experts at
the Company's expense to the extent that they deem necessary or advisable to
enable them to reach a determination.
5.5 EFFECT OF TERMINATION. Notwithstanding any termination of the
---------------------
Employment Period, the Company shall promptly pay Employee any amounts due to
Employee with respect to all accrued but unpaid salary and accrued but unused
vacation time to the date of termination. If Employee is deceased, such
payments shall be made to such individual or entity as Employee may have
designated in writing submitted to the Company or, in the absence of such
written designation, to Employee's estate.
6. COVENANTS OF THE EMPLOYEE. In consideration of the Employee's
-------------------------
continued employment with the Company, Employee hereby agrees that:
6.1 NONCOMPETITION COVENANT. During the Employment Period and for
-----------------------
one additional year thereafter the Employee will not, whether alone or as a
partner, officer, director, consultant, principal, distributor, representative,
agent, employee or stockholder of any company or other commercial enterprise,
engage in any business or other commercial activity which is competitive with
the products, services being marketed, distributed or developed by the Company.
The foregoing prohibition shall not prevent employment or engagement by any
company or business organization not engaged in such business as long as the
activities of any such employment or engagement, in any capacity, do not involve
work on matters directly or indirectly related to the products, services or
strategy being developed, manufactured or marketed by the Company. Ownership of
less than five percent (5%) of the outstanding shares of a company whose stock
is publicly traded shall not be a violation of this provision. If the Employee
is terminated without "cause" (as defined herein), the provisions of this
Section 6.1 shall not apply unless the Company shall have promptly made the
payments required to be made by it pursuant to Section 5.4 hereof.
6.2 NONSOLICITATION. During the Employment Period and for one
----------------
additional year thereafter the Employee will not, directly or indirectly, either
for himself/herself or for any other commercial enterprise, solicit, divert or
take away or attempt to solicit, divert or take away, any of the Company's
customers, business or prospective customers. For purposes of this Agreement,
"prospective customers" shall include those customers who have been solicited by
the Company within one year before the date Employee's employment with the
Company terminated. Furthermore, during such period, the Employee will not
solicit any employee of the Company for the employment of such Company employee
by any commercial enterprise, other than for the Company, nor recruit, solicit,
attempt to recruit or solicit, hire, or attempt to hire any
<PAGE>
such Company employee for any other commercial enterprise, whether or not such
enterprise may be a competitor of the Company.
6.3 NONDISCLOSURE OBLIGATION. The Employee will not at any time,
------------------------
whether during or after the term of this Agreement, and regardless of any early
termination thereof, for any reason whatsoever (other than to promote and
advance the business of the Company), reveal to any person or entity (both
commercial and non-commercial) any of the trade secrets, proprietary rights or
confidential business information concerning the Company, including but not
limited to its research and development activities, product designs, prototypes,
technical specifications, processes, formulae, inventions, methods and
memoranda, know-how and know-how, marketing plans and strategies, pricing and
costing policies, customer and supplier lists and accounts, and business,
finances or financial information of the Company so far as they have come and
may come to the Employee's knowledge, except as may be required in the ordinary
course of performing his/her duties as an Employee. These restrictions shall
not apply to: (i) information that may be disclosed generally or is in the
public domain through no default of the Employee; (ii) information received from
a third party who has not violated its own confidentiality obligation to the
Company; (iii) information approved for release by written authorization of the
Company; or (iv) information that may be required by law or an order of any
court, agency or proceeding to be disclosed. The Employee shall keep secret all
matters of such nature entrusted to him/her and shall not use or disclose any
such information in any manner which causes loss to the Company.
6.4 ASSIGNMENT OF INVENTIONS. It is expressly understood and
-------------------------
agreed that any and all right, title and interest of the Employee in any
inventions, discoveries and patent rights conceived or developed by the Employee
during the term of this Agreement (and thereafter if Employee remains an
employee of the Company) which relate to or arise out of his/her employment
services rendered to the Company are "works for hire" and are hereby assigned to
the Company by the Employee and shall be the sole and exclusive property of the
Company.
6.5 REFORMATION OF AGREEMENT. In the event that any of the
-------------------------
covenants contained in this Section 6 may be found by a court of competent
jurisdiction to be invalid or unenforceable as against public policy or
otherwise, the parties hereto expressly authorize such court to exercise its
discretion in reforming any such covenant to the end that Employee shall be
subject to the greatest extent permissible to confidentiality and noncompetition
covenants that are reasonable under the circumstances, enforceable by the
Company, and consistent with the Company's legitimate interests (acknowledged by
the parties) in protecting the Company's goodwill associated with the
experience, skills, and loyalty of Employee and with protecting the value of the
business and assets of the Company.
6.6 INJUNCTIVE RELIEF. In the event of a breach or threatened
------------------
breach by Employee of any of the covenants contained in this Section 6, Employee
agrees that the Company shall be entitled to injunctive relief in a court of
appropriate jurisdiction to remedy any such breach or threatened breach.
<PAGE>
7. INDEMNIFICATION. The Company hereby agrees to indemnify Employee to
----------------
the maximum extent permitted by applicable law against all costs, charges, and
expenses incurred or sustained by him/her in connection with any action, suit,
or other proceeding to which s/he may be made a party by reason of his/her being
an employee of the Company or by reason of any action taken or omitted to be
taken in good faith by Employee in such capacity, to the extent that Employee's
actions or omissions are consistent with and not in breach of the provisions of
this Agreement. The provisions of this Section 7 shall not be interpreted to
limit any right to indemnification that the Employee may have under the
Certificate of Incorporation or By-laws of the Company, by contract or otherwise
or under applicable law.
8. NONASSIGNABILITY. This Employment Agreement may not be assigned by
-----------------
either Company or Employee, except that the Company may assign its rights under
this Agreement to any affiliated corporation by means of assignment, merger, or
otherwise; and no such assignment shall impair the rights or obligations of the
parties as provided herein.
9. MISCELLANEOUS.
--------------
9.1 NOTICES. All notices and other communications required or
--------
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, sent by overnight courier service or
facsimile transmission, or dispatched by certified mail to the parties at the
following addresses or to such other address for a party as such party may have
designated to the other in a prior notice given in accordance herewith:
(a) If to the Company, to:
Copley Pharmaceutical, Inc.
25 John Road
Canton, MA 02021
Attn: President
Fax: (617) 821-4068
with a copy of such notice to:
Leslie E. Davis, Esq.
Testa, Hurwitz & Thibeault
53 State Street
Boston, MA 02109
Fax: (617) 248-7100
(b) If to Employee, to:
EMPLOYEE
ADDRESS
<PAGE>
9.2 ENTIRE AGREEMENT. This Agreement sets forth the entire
-----------------
agreement and understanding of the parties hereto concerning the subject matter
hereof and supersedes any prior understandings and agreements relating to the
terms of the Employee's employment by the Company.
9.3 AMENDMENTS; WAIVERS. This Agreement may be amended, modified,
--------------------
superseded, or cancelled and the terms or covenants hereof may be waived, only
by a written instrument specifically referring to this Agreement and executed by
both of the parties hereto, or, in the case of a waiver, by the party entitled
to the benefit of such provision. The failure of the Company at any time or
from time to time to require performance of any of Employee's obligations under
this Agreement shall in no manner affect the Company's right to enforce any
provisions of this Agreement at a subsequent time; and the waiver by the Company
of any right arising out of any breach shall not be construed as a waiver of any
right arising out of any subsequent breach.
9.4 SEVERABILITY. If any provision of this Agreement, or the
-------------
application thereof to any person or circumstance, should, for any reason and to
any extent, be invalid or unenforceable, the remainder of this Agreement shall
not be affected thereby.
9.5 GOVERNING LAW. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the Commonwealth of Massachusetts
applicable to contracts made and to be performed entirely within such
Commonwealth.
9.6 HEADINGS. The section headings contained in this Agreement are
---------
intended solely for convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on the
date first written above, effective as of such date.
EMPLOYEE:
EMPLOYEE
COPLEY PHARMACEUTICAL, INC.
By:
Title:
<PAGE>
EXHIBIT 10.41
-------------
Restated and Amended
--------------------
Nabumetone Agreement
--------------------
This AGREEMENT is made this 30th day of June, 1997, between RHODES
TECHNOLOGY COMPANY, a Delaware general partnership ("Rhodes") by Napp
Technologies, Inc., a Delaware corporation and the Managing General Partner of
Rhodes, with its principal office at 299 Market Street, Saddle Brook, New
Jersey, 07663 ("HCC") and COPLEY PHARMACEUTICAL, INC., a Delaware corporation
with its principal office at 25 John Road, Canton, Massachusetts, 02021
("Copley").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Copley and Hoechst Celanese Corporation ("HCC") are parties to
that certain agreement dated 30 April, 1996 with respect to Nabumetone
("Nabumetone Agreement"); and
WHEREAS, Rhodes is acquiring HCC's bulk pharmaceutical ingredient
manufacturing facility in Coventry, Rhode Island and as part of such acquisition
will be assuming the rights and obligations of HCC under the Nabumetone
Agreement in toto ("Acquisition"); and
-- ----
WHEREAS, Rhodes and Copley wish to amend and restate the terms of the
Nabumetone Agreement to reflect the rights and obligations of Rhodes and Copley
that will govern the relationship between Rhodes and Copley upon and after the
Acquisition and to terminate and cancel the Nabumetone Agreement.
Now, Therefore, Rhodes and Copley agree as follows:
<PAGE>
-2-
ARTICLE 1: EFFECTIVE DATE; CANCELLATION
---------------------------------------
1.1 This Restated and Amended Nabumetone Agreement shall be with effect
from and after the date that Rhodes assumes all the rights and all the
obligations of HCC under the Nabumetone Agreement as part of the Acquisition.
1.2 On the date Rhodes assumes all the rights and all the obligations of
HCC under the Nabumetone Agreement, this Agreement shall control the rights and
obligations of Copley and Rhodes.
ARTICLE 2: DEFINITIONS
----------------------
As used in this Agreement, the following terms shall have the meanings set
forth below:
2.1. "ANDA" shall mean Abbreviated New Drug Application.
2.2. "Commercial Year" shall mean the twelve (12) month period following
the first commercial market date for the Product and each anniversary date of
that date.
2.3. "CCOGS" shall mean Copley's cost of goods sold which shall include
Copley's direct material costs, direct utilities costs, direct waste disposal
costs and direct quality control costs, and overhead costs (allocated in
accordance with generally accepted accounting principles utilizing capacity
based standards) including indirect labor, supervision, repairs, maintenance,
supplies, utilities costs (which are not direct utilities costs), property
taxes, environmental safety and health administration costs, waste disposal
costs (which are not direct waste disposal costs), administration and financial
costs, quality assurance costs, purchasing, information systems and engineering
costs, and warehousing costs incurred in connection with the manufacture of the
Product and excluding any divisional or corporate allocation.
2.4. "Coventry Plant" shall mean Rhodes' manufacturing facility located in
Coventry, Rhode Island.
<PAGE>
-3-
2.5. "DMF" shall mean Drug Master File.
2.6. "FDA" shall mean the United States Food and Drug Administration.
2.7. "Gross Margin" shall have the meaning ascribed to it in Article 10.3
of this Agreement.
2.8. "RhodesCOGS" shall mean Rhodes' cost of goods sold which shall
include Rhodes' direct material costs, direct utilities costs, direct waste
disposal costs and direct quality control costs, and overhead costs (allocated
in accordance with generally accepted accounting principles utilizing capacity
based standards) including indirect labor, supervision, repairs, maintenance,
supplies, utilities costs (which are not direct utilities costs), property
taxes, environmental safety and health administration costs, waste disposal
costs (which are not direct waste disposal costs), administration and financial
costs, quality assurance costs, purchasing, information systems and engineering
costs, and warehousing costs incurred at the Coventry Plant in connection with
the manufacture of the Substance and excluding any divisional or corporate
allocation.
2.9. "Net Product Sales" shall mean the quantity of Product sold times
Copley's selling price for the Product minus the amount of any Product rebates,
discounts, allowances and returns.
2.10. "Paragraph IV Certification" shall have the meaning ascribed to it
in 21 CFR (S)314.50.
2.11. "Patent" shall have the meaning ascribed to in Article 13.1 of this
Agreement.
2.12. "Person" shall mean any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization, or other entity.
<PAGE>
-4-
2.13 "Product" or "Products" shall mean the pharmaceutical generic
preparation of Nabumetone in dosage form.
2.14. "Substance" shall mean the pharmaceutical generic substance
Nabumetone from which the Product is made in bulk form.
2.15. "Technical Royalty" shall have the meaning ascribed to it in Article
10.4 of this Agreement.
2.16. "Territory" shall mean the United States, including Puerto Rico.
ARTICLE 3: RESEARCH AND DEVELOPMENT OBLIGATIONS
-----------------------------------------------
3.1. RHODE's OBLIGATIONS:
(a) Rhodes shall use its best efforts and shall employ its research
and development facilities and services to the end that Rhodes shall have the
capability to produce commercial quantities of the Substance.
(b) Such research and development by Rhodes includes, but is not
limited to, the following:
(i) meeting the specifications for the Substance set forth in
Exhibit "A," attached hereto and made a part hereof. The
specifications can be modified by mutual agreement of the Parties.
When required pursuant to the notification requirements of 21 C.F.R.
(S)313.70, Rhodes agrees to notify Copley prior to implementing any
significant changes to its Substance manufacturing process that will
impact Rhode's ability to meet the specifications set forth in Exhibit
A. Rhodes further agrees that all such manufacturing changes will be
within DMF;
<PAGE>
-5-
(ii) producing an agreed-upon pilot quantity of Substance and
delivering to Copley such amount of such agreed amount of pilot
quantity as Copley, in its sole discretion, may request;
(iii) developing, compiling, and delivering to Copley technical
and regulatory information and documentation applicable to the
Substance; and
(iv) developing and compiling the technical know-how to produce
commercial quantities of Substance and put in place the equipment and
facility for such production.
(c) Rhodes shall exercise due diligence in performing the
aforementioned work.
(d) Rhodes shall permit Copley to visit its premises and have
reasonable access to its employees and substantive work papers concerning the
aforementioned work.
(e) Rhodes shall keep Copley informed about the current status of all
communications with the FDA concerning the Substance.
(f) with respect to Article 3 (b) (ii), the pilot quantity of
Substance Rhodes shall acquire as a result of the Acquisition and have in
inventory and available for Copley's orders therefor is set forth on Exhibit B
and the Parties recognize that the amount set forth on Exhibit B may be less as
of the date of the Acquisition in the event Copley orders pilot quantities of
the Substance from HCC prior to the Acquisition.
<PAGE>
-6-
3.2. Copley's OBLIGATIONS:
(a) Copley shall formulate the Product, conduct necessary stability
studies, pilot scale-up, bioequivalency studies, and apply to the FDA for
approval of an ANDA in Copley's name for the Product;
(b) Copley shall develop scaled-up manufacturing processes to produce
commercial quantities of the Product, and validate these processes for FDA
approval.
(c) Copley shall inform Rhodes of the progress of development and the
submission of the ANDA to the FDA;
(d) Copley shall keep Rhodes informed about the current status of all
communications with the FDA concerning the Product; and
(e) Copley shall exercise due diligence in performing the
aforementioned work.
ARTICLE 4: RESEARCH AND DEVELOPMENT COSTS
-----------------------------------------
4.1. Rhodes shall bear the costs associated with the research and
development of a manufacturing process to produce the Substance on a pilot
scale. Pilot quantities of the Substance shall be supplied to Copley for a
purchase price of $[ /*/ ] per kilogram.
4.2. Copley shall bear the costs associated with the research and
development relating to ANDA approval and manufacturing of FDA approved
validation batches of Product.
ARTICLE 5: AGREEMENT OF PURCHASE AND SALE
-----------------------------------------
5.1. Pursuant to the terms and conditions of this Agreement and any
renewal thereof as set forth in Article 6 herein, Rhodes shall manufacture and
supply Copley with all of its
- -------------
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
-7-
requirements of the Substance, and Copley shall purchase all its requirements of
the Substance from Rhodes for use in prescription drug products.
5.2. Notwithstanding the foregoing, Copley shall have the right to
purchase Substance from an alternative source in order to qualify such
alternative source in the event it becomes necessary to purchase the Substance
from an alternative source as a result of Rhodes' inability to supply Copley
with all of its requirements of the Substance, as permitted pursuant to this
Agreement.
5.3. Rhodes shall not supply Substance for use in the development or
manufacture of the Product to another company for prescription use prior to the
FDA's acceptance of Copley's ANDA submission.
5.4. In the event that a product or products containing the Substance is
approved by the FDA as an Over the Counter ("OTC") product and Copley is
approved by the FDA to sell such product or products, the Parties agree to
negotiate in good faith a profit sharing arrangement based upon the market
conditions that generally prevail in the OTC market and upon the conclusion of
such an arrangement between the Parties, the purchase and supply obligations
provided for in this Agreement shall apply.
ARTICLE 6: TERM
---------------
The initial term of this Agreement shall commence on the date of the
Acquisition and shall conclude on the seventh anniversary date of the first
Commercial Year unless sooner terminated as provided herein ("Initial Term").
Thereafter, this Agreement can be renewed for successive twelve (12) month
periods by mutual agreement.
<PAGE>
-8-
ARTICLE 7: ORDERS AND SHIPMENTS
-------------------------------
7.1. Rhodes and Copley will keep each other informed with respect to
activities and undertakings in respect of their obligations hereunder, including
without limitation, progress in the development of scaled-up manufacturing
processes for the Substance and the Product and the status and progress of the
patent litigation contemplated by Article 13.1 hereof to the end that Parties
will jointly estimate the beginning date of the first Commercial Year not less
than 24 months in advance of the beginning date of the first Commercial Year
("Joint Estimate Date"). The Joint Estimate Date shall not be less than 28
months from the date of Copley's submission of the ANDA to the FDA.
7.2. The Parties recognize that determining the Joint Estimate Date is
inherently speculative. Therefore, neither party will hold the other party
liable hereunder in the event that the Joint Estimate Date ultimately proves to
be incorrect.
7.3. On the date the parties determine the Joint Estimate Date, Copley
will provide Rhodes with a good faith estimate of Copley's maximum annual
requirements of the Substance as of the Joint Estimate Date. If, in any
subsequent Commercial Year of this Agreement, Copley determines that its future
annual maximum requirements for the Substance will exceed Rhode's manufacturing
capacity for the Substance, Copley shall send Rhodes 18 months advance written
notice of Copley's projected additional maximum annual requirements and Rhodes
may, in its sole discretion, determine whether or not to increase its capacity
for producing the Substance in order to meet Copley's additional requirements.
Rhodes shall notify Copley as promptly as possible of its decision in this
regard.
7.4. At least ninety (90) days prior to the commencement of a Commercial
Year, Copley shall present to Rhodes Copley's best estimate of its annual
requirements for the
<PAGE>
-9-
Substance during the upcoming Commercial Year on a quarterly basis. Copley will
also notify Rhodes at least sixty (60) days before each quarter of its estimated
monthly requirements for that and the next quarter which requirements will
supersede those provided pursuant to the above annual forecast. Rhodes will base
resources decisions at the Coventry Plant on Copley's annual estimated purchases
and thus Copley's failure to achieve those estimated purchases will result in
year end cost adjustments by Rhodes.
7.5. Copley will place firm orders for the Substance at least forty-five
(45) days before each required shipment date. Both Parties agree to work
together to reduce lead time for orders and deliveries.
7.6. Copley will accept deliveries of Substance from Rhodes based on
orders placed pursuant to this Article 7. Rhodes will not be required to
deliver, in any calendar year, additional quantities of Substance exceeding ten
percent (10%) of the quantity of Copley's annual estimated purchases for that
Commercial Year provided by Copley under Article 7.4. Rhodes will supply the
additional quantity of Substance by reducing the inventory of Substance
specified in Article 8 herein.
ARTICLE 8: INVENTORY REQUIREMENT
--------------------------------
8.1. At all times during the term of this Agreement and any extension
thereof, Rhodes will maintain an inventory of at least twenty (20) percent of
Copley's estimated purchases of Substance from Rhodes for the next two quarters,
as set forth in Article 7.4.
8.2. In the event that Rhodes supplies an additional quantity of substance
to Copley pursuant to Article 7, the amount of such additional quantity shall be
credited against the inventory requirement provided for in this Article 8.
<PAGE>
-10-
ARTICLE 9: REGULATORY MATTERS
-----------------------------
9.1. Copley agrees to take reasonable steps (i) to file its ANDA for the
Product in 1997 and (ii) to secure FDA approval for the Product. Copley and
Rhodes agree to take all necessary action to obtain and maintain any approvals
necessary to permit Copley to sell the Product under Copley's name in compliance
with applicable federal and state drug laws.
9.2. Copley and Rhodes will make available to each other within three (3)
days of receipt regulatory correspondence covering the following issues:
regulatory letters, Product recalls, withdrawal of Product, and correspondence
bearing on the safety and efficacy of the Product.
9.3. In order to facilitate Copley's quality assurance activities with
respect to the Product, Rhodes agrees to allow Copley at least once per year at
mutually agreeable times to inspect/audit Rhodes facilities and records
pertaining to manufacture, testing, storage, and packaging for compliance with
Good Manufacturing Practices.
ARTICLE 10: PROFIT SHARING, AUDITS, BILLING, AND TERMS
------------------------------------------------------
10.1. Copley will use best marketing and sales practices to maximize sales
and execute a product strategy, within the framework of applicable laws and
regulations, to optimize sales of the Product in the Territory.
10.2. Within thirty (30) days after the end of each month, Rhodes will
forward a Summary of RhodesCOGS, as that term is defined in Article 2.8 hereof,
to Copley. At that time Rhodes will also invoice Copley for the amount of the
Substance purchased by Copley during the
<PAGE>
-11-
preceding month. The Substance purchase price shall be equal to
[ /*/ ]. Payment is due thirty (30) days from the date of the invoice.
10.3. In consideration for Rhodes assistance and indemnification in
connection with the Patent litigation contemplated by Article 13 hereof, Copley
hereby agrees to share with Rhodes Copley's profit arising out of the commercial
sale of the Product in accordance with the following formula:
[ /*/ ]
WHERE
[ /*/ ] and
"Technical Royalty" has the meaning ascribed to it in Article 10.4 herein.
10.4.
(a) Subject to the provisions of Article 10.4 (b) and Article 10.4
(c), in the event that the challenge to the Patent contemplated by Article 13.1
is concluded either by judicial resolution or settlement and following such
judicial resolution or settlement Copley can manufacture, market or sell the
Product and such manufacture, marketing or sale does not constitute an
infringement of the Patent in the Territory, Copley will pay a technical royalty
(herein referred to as the "Technical Royalty") for four (4) years. The
Technical Royalty is graduated and is based upon a Commercial Year, as that term
is defined in Article 1 hereof. The
- ---------------
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
-12-
Technical Royalty for the first Commercial Year of this Agreement shall be
[ /*/ ] of Copley's Gross Margin. The Technical Royalty for the second and
third Commercial Years shall be [ /*/ ] of Copley's Gross Margin for each
of those years. The Technical Royalty for the fourth Commercial Year shall be
[ /*/ ] of Copley's Gross Margin.
(b) In the event that the challenge to the Patent contemplated by
Article 13.1 is not concluded either by judicial resolution or settlement as
provided in Article 10.4 (a) or Rhode's manufacture of the Substance infringes
any other patent in the Territory, no Technical Royalty will be owed to Rhodes.
(c) If any company other than the owner of the Patent described in
Article 13 files an ANDA with respect to the Product in advance of Copley's
ANDA, Rhodes can, at its sole discretion, unilaterally elect to terminate this
Agreement by providing written notice to Copley of Rhodes' decision to terminate
this Agreement, or Rhodes can continue with this Agreement and if the earlier
filed company successfully challenges the Patent by a judicial resolution that
the Patent is invalid, no Technical Royalty will be owed to Rhodes. Should
Rhodes decide to challenge the validity of the Patent at a later date, Rhodes
shall first offer Copley the opportunity to reinstate the provisions of this
Agreement, which offer Copley shall accept or reject within thirty (30) days.
If Rhodes terminates this Agreement pursuant to this Article 10.4 (c), Copley
may thereafter seek an alternative source of the Substance and manufacture and
sell the Product without any obligation or liability to Rhodes.
10.5 Within thirty (30) days of the end of each month during each
Commercial year of this Agreement, Copley shall prepare a CCOGS summary and
forward it to Rhodes. The Copley
- -------------------
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
-13-
summary shall include the gross product sales in Dollars for the preceding
month, the Product rebates, discounts, allowances and returns for the same
period deducted from Copley's gross product sales, and CCOGS. This information
will be utilized to determine the Technical Royalty and the Profit Share to be
paid to Rhodes, as described in the preceding subsections of this Article 10.
Rhodes will bill Copley quarterly (according to the following schedule: January
2nd, April 1st, July lst, and October 1st) for the Technical Royalty and Profit
Share due for the three (3) months preceding each of the dates specified
immediately above and the payment is due thirty (30) days from the date of
Rhodes' invoice.
10.6. If at any time during the term of this Agreement Copley is unable to
sell the Product at the prevailing average market price without its Gross Margin
falling to or below [ /*/ ], Rhodes and Copley agree to meet to determine if
cost savings can be achieved that will permit Copley to sell the Product at
prevailing market conditions with a minimum Gross Margin of [ /*/ ].
10.7. Once each year, Rhodes and Copley may, upon thirty (30) days written
notice to the other Party, audit the books and records of the other Party at
Rhodes or Copley's offices, as applicable, to determine the accuracy of the
other Party's financial and cost determinations hereunder.
ARTICLE 11: TERMINATION
-----------------------
11.1. Either Party will have the right to terminate this Agreement by
giving three (3) years notice in writing to the other party; however, no
termination can take effect during the Initial Term unless one or more of the
following events occur, in which case either party must give due notice:
- -------------------
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
-14-
(a) Insolvency or bankruptcy of the other Party or the inability or
failure of the other Party to perform any financial obligations as the same
become due;
(b) Demonstrable inability of the other Party to perform its
material obligations under this Agreement; and/or
(c) The enactment of any law, order or regulation by a governmental
unit in the Territory that would render it impracticable or impossible for the
other Party to perform it obligations hereunder.
(d) Pursuant to Article 10.4(c) of this Agreement.
11.2. Upon the occurrence of any of the events set forth in Article 11.1,
either Rhodes or Copley may so notify the other Party in writing, specifying in
reasonable detail the claimed occurrence. If the condition referred to in such
notice has not been cured within one hundred twenty (120) days from receipt of
the notice, this Agreement shall thereupon terminate; provided, however, that if
-----------------
such condition reasonably cannot be cured within said period, it shall be
sufficient to prevent termination if the party seeking to effect a cure gives
notice to the other within said period that it will diligently pursue a cure and
in fact diligently works to the effect a cure, setting forth in reasonable
detail the action taken, and thereafter cures the condition within a period
ending not later than two hundred forty (240) days after receipt of the original
notice of default. Copley may purchase the Substance from other suppliers, as
provided in Article 14 hereof, in the event of a reduction, due to an event
identified in this Article, in the quantities of the Substance Copley is able to
purchase from Rhodes.
<PAGE>
-15-
ARTICLE 12: WARRANTY
--------------------
Rhodes warrants that the Substance delivered to Copley will conform to the
specifications set forth on Exhibit A and the containers in which the Substance
is shipped will conform to the specification set forth in Exhibit A. Rhodes
further warrants that the Substance to be supplied to Copley hereunder will
conform to and will be manufactured in conformity with applicable FDA and State
regulations. THIS WARRANTY IS THE ONLY WARRANTY, EXPRESS OR IMPLIED, MADE BY
RHODES AS TO THE SUBSTANCE, AND ALL OTHER WARRANTIES, INCLUDING MERCHANTABILITY
OR FITNESS FOR ANY PARTICULAR PURPOSE, ARE DISCLAIMED. Except as otherwise
provided in this Agreement, the exclusive remedy for breach of warranty will be
prompt replacement of the nonconforming Substance at Rhodes' expense with a like
amount of the Substance conforming to the above-stated warranty. For purposes
hereof, replacement may include reprocessing of the Substance if done in a
period of time commercially reasonable to Copley. In no event will Rhodes be
liable to Copley for any alteration, change, improper packaging or other
improper treatment of Substance by Copley other than in accordance with Rhodes'
instructions; nor will Rhodes be liable to Copley for any damage arising solely
from Copley's marketing, production, advertising, distribution or sale of
Product that conforms to the warranty set forth above.
ARTICLE 13: INDEMNITY; SETTLEMENT
---------------------------------
13.1. Rhodes and Copley acknowledge that Copley, in seeking FDA approval
to market the Product, shall certify in the ANDA Copley submits to the FDA that
the Patent is invalid or that the Patent will not be infringed by the
manufacture, use, or sale of the Product. In the event that SmithKline Beecham,
Inc., the owner of United States Patent No. 4420639 ("Patent"),
<PAGE>
-16-
institutes an action to enforce its rights pursuant to the Patent, Copley agrees
that Rhodes will be solely responsible for selecting the defense counsel and
managing the defense and the litigation and Copley will fully cooperate in the
defense of that action. Subject to the foregoing, Rhodes will indemnify Copley
in accordance with the terms of Article 13.2.
13.2. Rhodes will defend, indemnify and hold harmless Copley and its
affiliates (and each of their employees, officers, directors and stockholders)
from and against any and all claims, liabilities, assessed damages, costs and
expenses (including, without limitation, costs and expenses of investigation and
settlement, court costs and attorneys' fees and expenses regardless of outcome,
but excluding any indirect, incidental or consequential damages or losses and
lost profits) arising solely out of any allegation of infringement of the Patent
in the Territory with respect to the Product and any allegation of infringement
of any other patent in the Territory with respect to Rhodes, manufacture of the
Substance, including those associated with any Patent action in the Territory
brought by SmithKline Beecham. Rhodes' indemnification obligation described
herein shall be subject to the limitations of liability set forth in Articles 12
and 15.3 hereof, where the claims, liabilities, assessed damages, costs and
expenses arise solely out of any claim of defect in the Substance or the failure
of the Substance to conform to the express warranty set forth in Article 12
hereof. Rhodes will defend, indemnify and hold harmless Copley and its
affiliates (and each of their employees, officers, directors and stockholders)
from and against any and all claims, liabilities, assessed damages, costs and
expenses (including, without limitation, costs and expenses of investigation and
settlement, court costs, attorneys' fees and expenses regardless of outcome and
costs incurred by Copley under contracts with its customers requiring Copley to
pay the difference between the price charged such customer by Copley and the
price paid by such customer to cover a failure to supply by Copley, but
excluding any
<PAGE>
-17-
indirect, incidental or consequential damages or losses and lost profits) to the
extent caused by Rhodes' inability to manufacture the Substance.
13.3. Copley will defend, indemnify and hold harmless Rhodes and its
affiliates (and each of their employees, officers, directors and stockholders)
from and against any and all claims, liabilities, assessed damages, costs and
expenses (including, without limitation, costs and expenses of investigation and
settlement, court costs and attorneys' fees and expenses regardless of outcome,
but excluding any indirect, incidental or consequential damages or losses and
lost profits) to the extent caused by Copley's marketing, production,
advertising, distribution or sale of Product that conforms to the express
warranty set forth in Article 12 hereof or caused by alterations to Substance or
Product made by Copley after delivery by Rhodes other than in accordance with
the directions of Rhodes, except to the extent such claim arises out of Rhodes'
breach of this Agreement, gross negligence or misconduct.
13.4. The Parties will cooperate and give each other prompt notice of
claims as to which indemnification may be claimed hereunder. The indemnifying
Party will not settle any claim or lawsuit relating to the Product without the
prior approval of the Indemnified Party, which approval will not be unreasonably
withheld.
13.5. Copley agrees that at no time in advance of a judicial resolution or
settlement of the challenge to the Patent contemplated by Article 13.1 shall it
unilaterally sell the Product. If Copley does so sell the Product, all
indemnification by Rhodes is waived.
13.6. The Parties recognize that the Patent litigation contemplated by
Article 13.1 may be resolved by means of a settlement with SmithKline Beecham,
Inc., the owner of the Patent ("Patent Owner"). The following provisions shall
apply in respect of attempting to conclude a settlement and with respect to a
settlement, as concluded.
<PAGE>
-18-
(a) [ /*/ ]
(b) [ /*/ ]
(c) [ /*/ ]
(d) [ /*/ ]
- ----------------
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
-19-
(e) [ /*/ ]
(f) [ /*/ ]
(g) [ /*/ ]
(h) [ /*/ ]
- ----------------
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
-20-
[ /*/ ]
ARTICLE 14: FORCE MAJEURE
-------------------------
In the event of war, fire, flood, strike, labor trouble, accident, riot,
act of government authority (including changes in FDA laws and regulations),
lack of fuel or energy, natural disasters, or other contingencies, whether of
like or different nature, beyond the control of the Parties hereto, and
interfering with the production, supply, transportation, marketing, or
consumption of the Product or Substance, with the supply of raw materials used
in connection therewith or with due performance of this Agreement by any Party
("Force Majeure Event"), the Party affected thereby shall give prompt written
notice to the other. The Party affected by such event shall be excused from
performance of its obligations hereunder for the period that such event
continues; provided, however, that the Party affected by such event shall use
-------- -------
all reasonable efforts to avoid or overcome the causes affecting performance,
and shall resume performance of
- ----------------
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
-21-
its obligations hereunder as soon as possible. In the event of a reduction, due
to a Force Majeure Event, in the quantities of the Substance Copley is able to
purchase from Rhodes, Copley may purchase the Substance from other suppliers.
ARTICLE 15: HANDLING AND CLAIMS
-------------------------------
15.1. The Substance supplied under this Agreement will be delivered FOB
Rhode's Coventry Plant. Rhodes shall make shipping arrangements with the
appropriate carriers from the FOB point under the agreements that Copley has
with those carriers. Title and risk of loss passes to Copley when the Substance
is delivered to the carrier at the FOB point.
15.2. Each Party acknowledges that Substance and Product require special
handling, storage, transportation, treatment or use to comply with applicable
safety and environmental laws. At times when such Party has title and risk of
loss for Substance or Product, it will take all actions necessary to comply with
those laws and avoid spills or other dangers to persons, property or the
environment.
15.3. Notwithstanding any provision herein to the contrary, Copley will
test and inspect Substance for compliance with this Agreement within a
reasonable time after such shipment is received. All claims against Rhodes with
respect to any shipment of Substance, including claims for allegedly defective
goods or shortage, will be deemed waived unless made in writing and received by
Rhodes within sixty (60) days after Copley's receipt of such shipment.
Variations in invoice quantity of one percent (1%) or less will be disregarded.
If these variations are consistently in one direction, Rhodes and Copley will
work to resolve them.
<PAGE>
-22-
ARTICLE 16: NOTICES
-------------------
16.1. All notices under this Agreement must be made in writing and mailed
or delivered to the following:
Copley: Copley Pharmaceutical, Inc.
25 John Road
Canton, MA 02021
Attention: General Counsel
Rhodes: Rhodes Technology Company
299 Market Street
Saddle Brook, NJ 07663
Attention: Hans Peter Kirchgaessner
with a copy to: Rhodes Technology Company
100 Connecticut Avenue
Norwalk, CT 06850
Attention: Howard R. Udell
16.2. If either or both Parties employ purchase orders or acknowledgment
forms or other commercial forms in the administering of this Agreement, none of
the terms and conditions printed or otherwise appearing on such forms will be
applicable except to the extent that they reflect quantity, destination, mode of
shipment, or timing of deliveries.
ARTICLE 17: ASSIGNMENT
----------------------
17.1. This Agreement is not assignable or transferable by either Party
hereto, in whole or in part, without the prior written consent of the other
Party, except
(a) to its existing affiliates or parents, and to any successor of
substantially all of its business, and assets of either Copley or Rhodes which
relate to Substance or Product, or
<PAGE>
-23-
(b) in the case of Copley, in whole or in part to subsidiaries or
affiliates of which a majority stock is owned or controlled, of the voting
directly or indirectly, by Copley or by any company owning, directly or
indirectly, one hundred percent (100%) of Copley, or
(c) in the case of Rhodes, to subsidiaries or affiliates of which a
majority of the voting stock is owned or controlled, directly or indirectly, by
Rhodes or by any company owning, directly or indirectly, one hundred percent
(100%) of Rhodes, provided that no such agreement shall serve to release the
assigning Party from liability for its obligations hereunder; and
17.2. This Agreement shall be binding upon, and shall inure to the benefit
of, the respective successors and permitted assigns of the Parties.
ARTICLE 18: APPLICABLE LAW
--------------------------
18.1. Both Parties agree that, in the event of a dispute relating to this
Agreement, they are prepared to explore resolution of the dispute through
negotiation or Alternative Dispute Resolution (ADR) techniques before pursuing
full-scale litigation. No lawsuit may be commenced unless a Party gives the
other side fifteen (15) days notice of its intent to initiate litigation.
18.2. This Agreement will be interpreted in accordance with the state laws
of Delaware. Any lawsuit or application for judicial relief of interpretation
by the Parties relating to this Agreement will be filed only in the State of
Delaware. The Parties hereby consent to the jurisdiction of the State of
Delaware over them in matters relating to this Agreement including, but not
limited to, performance, nonperformance, enforcement or interpretation.
<PAGE>
-24-
ARTICLE 19: SEVERABILITY
------------------------
This Agreement is intended to be valid and effective under any applicable
law and, to the extent permissible shall be construed to avoid violation of or
invalidity under any applicable law. Should any provisions of this Agreement be
or become invalid, illegal or unenforceable under any applicable law, the other
provisions of this Agreement shall not be affected and shall remain in full
force and effect and to the extent permissible under applicable law, any such
invalid, illegal or unenforceable provision shall be deemed lawfully amended to
conform with the intent of the Parties. Nothing in this Article shall preclude
a Party hereto from bringing an action for failure of consideration in the event
a material provision of this Agreement shall be held invalid, illegal or
unenforceable.
ARTICLE 20: ENTIRE AGREEMENT
----------------------------
This Agreement contains the sole and entire understanding of the Parties
related to its subject matter and supersedes all prior or contemporaneous oral
or written Agreements concerning the subject matter.
ARTICLE 21: MODIFICATION
------------------------
This Agreement cannot be changed orally and no modification of this
Agreement will be recognized or have any effect, unless the writing in which it
is set forth is signed by Rhodes and Copley, nor will any waiver of any of the
provisions of this Agreement be effective unless in writing and signed by the
Party to be charged therewith.
ARTICLE 22: WAIVER
------------------
The failure of either Party to enforce, at any time, or for any period of
time, the provisions hereof or failure of either Party to exercise any option
herein will not be construed as a waiver of such provision or option and will in
no way effect that Party's right to enforce such
<PAGE>
-25-
provisions or exercise such option. No waiver of any provision hereof will be
deemed a waiver of any succeeding breach of the same or any other provisions of
this Agreement.
ARTICLE 23: HEADINGS
--------------------
The headings herein are for the purpose of convenience of reference only
and are not intended to define or limit the contents of this Agreement.
<PAGE>
-26-
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their respective duly authorized officers as of the date first written above.
COPLEY PHARMACEUTICAL, INC. RHODES TECHNOLOGY COMPANY
by Napp Technologies, Inc.,
its Managing General Partner
By: /s/ Gene M. Bauer By: /s/ H. P. Kircehigaessner
--------------------------- ------------------------------
Printed Name: Gene M. Bauer Printed Name: H.P. Kircehigassner
----------------- --------------------
Title: Vice President Secretary Title: President
------------------------ ---------------------------
<PAGE>
Exhibit A
Nabumetone Raw Material Specifications
1. Label Nabumetone.
2. Manufacturer Rhodes Technology Company.
3. Appearance A white or almost white,
crystalline powder.
4. Identification [ /*/ ]
5. Chromatographic Purity [ /*/ ]
6. Nabumetone Alcohol [ /*/ ]%
7. Heavy Metals [ /*/ ]
8 . Residue On Ignition [ /*/ ]
9. Loss On Drying [ /*/ ]
10. Melting Range [ /*/ ]
11. Assay [ /*/ ]
12. Particle Size [ /*/ ]
13. Organic Volatile [ /*/ ]
Impurities,
Method IV:
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
Exhibit B
---------
NABUMETONE INVENTORY
- --------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
LOCATION IN PRODUCT LOT NUMBER AMOUNT IN KGS
WAREHOUSE
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Mill Room NABUMETONE DRY NDCA-005 [ /*/ ]
- ---------------------------------------------------------------------------------------------
Mill Room NABUMETONE MILLED NMC-70010 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5103 NABUMETONE DRY NDCA-002 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5103 NABUMETONE MILLED NMEX-001 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5103 NABUMETONE MILLED NMEX-001 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5104 NABUMETONE MILLED NMCA-002 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5104 NABUMETONE MILLED NMCA-002 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5104 NABUMETONE MILLED NMCA-001 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5105 NABUMETONE DRY NDCA-007 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5105 NABUMETONE DRY NDCA-007 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5105 NABUMETONE DRY NDCA-007 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5105 NABUMETONE DRY NDCA-007 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5106 NABUMETONE DRY NDCA-001 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5107 NABUMETONE DRY NDCA-004 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5107 NABUMETONE DRY NDCA-006 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5107 NABUMETONE DRY NDCA-006 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5107 NABUMETONE DRY NDCA-006 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5108 NABUMETONE PURE NDCA-001 [ /*/ ]
- ---------------------------------------------------------------------------------------------
</TABLE>
- -----------------
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------
<C> <S> <C> <C>
5108 NABUMETONE MILLED NME-60002 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5108 NABUMETONE DRY NDCA-003 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5108 NABUMETONE DRY NDCA-001 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5109 NABUMETONE MILLED NMCB-007 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5109 NABUMETONE MILLED NMCB-007 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5109 NABUMETONE MILLED NMCB-007 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5110 NABUMETONE MILLED NMC-70008 [ /*/ ]
- ---------------------------------------------------------------------------------------------
5110 NABUMETONE MILLED NMC-70009 [ /*/ ]
- ---------------------------------------------------------------------------------------------
</TABLE>
- ------------------
/*/ Confidential portion has been omitted pursuant to a request for confidential
treatment and has been filed separately with the Commission.
<PAGE>
APPENDIX TO FORM 10-K FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
displayed in normal type.
(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The registered mark symbol has been replaced by (R).
(6) The trade mark symbol has been replaced by (TM).
